The Daily Options Trader Checklist: A Proven Framework for High-Probability Trades

Most options traders spend their days reacting—chasing momentum, trading headlines, or second-guessing their setups. But the traders who thrive over time? The ones who grow their accounts with consistency? They don’t chase. They follow a process.

In volatile markets, success comes not from prediction, but preparation.

Every trading day, the market sends out signals—shifts in implied volatility, sentiment skews, and momentum imbalances. The traders who learn how to read those signals before they become consensus are the ones who uncover the best risk-adjusted opportunities.

That’s why I built a daily options trader checklist years ago, modeled after The Implied Truth, my signature market diagnostic tool. This checklist helps you consistently identify where edge exists in the market—whether you're a premium seller, a directional trader, or a volatility strategist. To receive The Implied Truth on a weekly basis click here.

It’s not about trading more. It’s about trading with purpose.

Step 1: Analyze the Volatility Landscape

Key Metrics: Implied Volatility (IV), IV Rank, and IV Percentile

Volatility is the foundation of every options strategy. Without understanding it, you’re trading blind. Implied volatility tells us how much movement the market expects. But to gauge whether options are cheap or expensive, we need context.

• IV Rank shows how current implied volatility compares to the past 12 months. A 0% rank means IV is at its lowest point of the year; 100% is the highest.

• IV Percentile tells us how often IV has been lower over the past year. It complements IV Rank by adding historical perspective. For example, if the IV Percentile is 85%, it means implied volatility has been lower 85% of the time over the past year—indicating today's levels are unusually high.

Actionable Application: When IV Rank is above 35% and IV Percentile is above 50%, you’re likely in a high-volatility regime—ideal for premium-selling strategies like iron condors, credit spreads (bear call and bull put), and short strangles. These environments allow you to sell options with wider breakevens and still collect solid premiums.

When implied volatility is low, options are generally cheaper because the market expects smaller price movements. In these environments, the edge shifts away from premium-selling strategies and toward buying premium. This is where debit spreads, long calls or puts, and calendar spreads become more attractive. These strategies allow you to benefit from directional moves or anticipated volatility expansions, all while taking advantage of favorable option pricing.

Core Takeaway:
You should only sell premium when the options market is pricing in more movement than the underlying asset typically delivers. This happens when implied volatility is elevated relative to historical norms—reflected by a high IV Rank and IV Percentile. In these cases, option premiums are inflated because traders are expecting significant price swings. As a premium seller, your edge comes from the fact that markets tend to overestimate volatility, meaning actual price movement (realized volatility) often comes in lower than expected. Selling options in these environments allows you to capture that discrepancy—collecting rich premiums while benefiting from time decay and the market’s tendency to revert to its mean.

Step 2: Assess Market Sentiment with the Put/Call Ratio

Key Metric: Put/Call Ratio (P/C Ratio)

The put/call ratio is a simple yet powerful sentiment gauge. It measures how many puts are being traded relative to calls. Extremes in this ratio often act as contrarian indicators.

• A P/C ratio above 1.5 typically signals fear or aggressive hedging—often a bullish contrarian indicator.

• A P/C ratio below 0.7 can indicate complacency—often a warning sign of a potential reversal lower.

Actionable Application: Use these sentiment extremes as filters:

• If P/C is elevated and RSI is oversold, consider selling bullish put spreads or opening delta-positive positions.

• If P/C is very low and RSI is overbought, it may be time to fade the optimism with bearish call spreads or put calendars.

Core Takeaway:
When sentiment skews heavily to one side—either excessively bullish or overwhelmingly bearish—it often reflects emotional extremes in the market. At these points, most traders have already acted on their views, leaving fewer participants to push the move further. This creates a situation where the market becomes vulnerable to a reversal, not because of new information, but because the imbalance between buyers and sellers is stretched.

For example, a very low put/call ratio (e.g., below 0.6) may signal that traders are piling into calls and expecting continued upside. But when nearly everyone is leaning bullish, who's left to buy? Conversely, a very high put/call ratio (e.g., above 1.5) may indicate panic or aggressive hedging, which often marks a short-term bottom. In both cases, sentiment has become a contrarian signal—but that doesn’t mean it's an immediate trade.

Step 3: Measure Momentum Across Timeframes

Key Metrics: RSI (2, 7, 14)

Momentum is a trader’s best friend—until it becomes your worst enemy. The Relative Strength Index (RSI) is a versatile momentum indicator that helps you time short-term moves and identify trend exhaustion.

• RSI(2) is a very short-term indicator. It’s fast-moving and useful for short-dated trades.

• RSI(7) offers a middle-ground view—ideal for swing setups.

• RSI(14) is the standard default and captures longer-term trend strength or weakness.

Actionable Application:

• If RSI(2) falls below 20 while RSI(14) remains neutral, you may be seeing a short-term pullback in an ongoing trend—perfect for quick trades using weekly options.

• If all three RSIs fall below 20 or above 80, momentum has likely reached an extreme—creating a potential reversal setup.

Core Takeaway:
To get the most out of RSI as a trading tool, don’t rely on a single timeframe. Instead, layer your RSI readings across multiple timeframes—such as RSI(2), RSI(7), and RSI(14). This multi-layered approach gives you a more complete picture of momentum by helping you distinguish between short-term price noise and longer-term trend exhaustion.

• RSI(2) is highly sensitive and reacts quickly to price moves, making it ideal for spotting short-term oversold or overbought conditions.

• RSI(7) smooths things out slightly and captures short swing trends.

• RSI(14), the standard, reflects broader trend momentum and is useful for identifying true exhaustion zones.

By layering these together, you can identify high-probability setups that align with both short-term opportunity and broader market context. For example, if RSI(2) dips below 20 (short-term oversold) while RSI(14) remains neutral or bullish, that often signals a tactical entry within a continuing uptrend. This is especially effective when combined with elevated implied volatility—giving you both timing and pricing edge for strategies like short puts, put spreads, or short-dated directional plays.

The key is to use the faster RSI readings to fine-tune entries, while using the slower readings to filter out low-conviction trades. When all three RSIs align—either deeply overbought or oversold—the setup becomes even stronger, especially when supported by price action and volatility conditions.

In essence, this layered RSI strategy acts as your momentum radar. It helps you pinpoint when the market is stretched enough to offer edge, while staying grounded in the broader volatility environment that defines your risk-reward profile.

Step 4: Look for Setup Clusters

Key Concept: Multi-Factor Alignment

In options trading, isolated indicators can be noisy. A single spike in implied volatility might catch your eye, but without confirmation from momentum or sentiment, it could just be a blip. Similarly, an oversold RSI reading might hint at a bounce, but without elevated IV or extreme sentiment, the setup may lack edge.

That’s why professional traders use multi-factor alignment to validate their thesis. The more uncorrelated indicators pointing to the same conclusion, the greater your probability of success. This is what we call a setup cluster—a convergence of multiple signals that stack the odds in your favor.

Why Setup Clusters Matter

Markets are complex systems influenced by volatility, momentum, sentiment, and positioning. Each of these forces can push price temporarily, but when they align, the move is more likely to be sustained—or mean-reverting if stretched to extremes.

A setup cluster acts like a filter. It helps you separate high-conviction opportunities from trades driven by noise or randomness.

Example of a High-Probability Cluster

Let’s say you observe the following on a major ETF like IWM:

• IV Rank above 50%
  This tells you the options market is pricing in significantly more movement than normal—premiums are rich.

• RSI(2) oversold (<20)
  Momentum is stretched to the downside in the short term, indicating a potential snapback or reversal.

• Put/Call Ratio above 1.5
  Sentiment is extremely bearish, suggesting fear-driven hedging or panic selling.

This combination suggests a rare alignment: high volatility, short-term momentum exhaustion, and bearish sentiment extremes. Together, they create a fertile environment for premium-selling strategies like short puts, put spreads, or iron condors—especially if price is approaching a support zone.

Actionable Application

Each trading day, maintain a short watchlist that organizes your potential setups into two categories:

• Primary Setups:
  Trades that meet three or more aligned criteria—these are your highest-confidence, most actionable opportunities. You can typically size up or deploy capital more aggressively, assuming portfolio risk is balanced.

• Secondary Setups:
  Trades that meet two aligned criteria—these are potential candidates, but they need further confirmation (such as a supportive price pattern or reversal candle). These setups are great for tracking and staging, especially if volatility shifts intraday.

Bonus Tip: Use a simple spreadsheet or Notion dashboard to track your clusters. Include columns for IV Rank, IV Percentile, RSI levels, P/C ratio, and price position relative to the 52-week range. This turns your process into a repeatable framework.

Core Takeaway

Think like a portfolio manager, not a day trader. You’re not looking for random signals—you’re building a case. When multiple independent indicators all support the same conclusion, you have a trade with structure, logic, and statistical backing.

The more evidence you have, the more confidence you should have in deploying capital—but only when your thesis aligns across volatility, sentiment, and momentum.

Step 5: Match Your Strategy to the Market Regime

Key Principle: Align Strategy with Market Conditions

Spotting a good setup is only half the equation. The other half is knowing how to express that view with the right options strategy.

Each market environment presents a unique volatility and directional backdrop—and different options strategies are built to thrive in different conditions. If you mismatch your strategy with the environment (for example, buying calls in a low-volatility, rangebound market), you’re setting yourself up for failure—even if your directional bias is correct.

This step is about tactical fit: selecting the strategy that aligns with what the market is offering right now.

Matchups That Work: Market Environment vs. Strategy

A. High Implied Volatility, Low Momentum

When implied volatility is elevated and price action is consolidating or choppy, the market is overpricing movement relative to what it's delivering. This is a classic setup for premium-selling strategies:

• Iron condors allow you to collect premium across a wide range while defining your risk.

• Credit spreads (especially out-of-the-money) let you take directional or neutral stances with limited downside.

Why it works: You’re selling inflated options that are less likely to be challenged if the underlying stays quiet. Time decay and IV contraction work in your favor.

B. Low Implied Volatility, Strong Trend

When IV is suppressed and price is trending cleanly, the market isn’t pricing in much movement—making it cheap to buy premium:

• Long calls or puts are straightforward directional bets when volatility is underpriced.

• Debit spreads help control cost and improve risk-reward, especially if IV is expected to remain low.

Why it works: You’re buying undervalued options and gaining exposure to directional moves with low upfront risk. If volatility expands, it boosts the trade even further.

C. Extreme Sentiment Conditions

When the put/call ratio is at an extreme (e.g., >1.5 or <0.6), it often signals a contrarian opportunity. But since reversals can be messy or take time, choose strategies that give you room for error and time for the trade to work:

• Vertical spreads (e.g., bull put spreads or bear call spreads) offer directional exposure with limited risk.

• Calendar spreads allow you to position for mean reversion while benefiting from differing timeframes and volatility structures.

Why it works: Sentiment extremes rarely reverse immediately. These strategies buy you time, define your risk, and capitalize on reversion if and when it happens.

D. Volatility Expansion Expected

If you expect a sharp move in either direction—such as ahead of earnings, a Fed announcement, or after a prolonged coil—look to long volatility strategies:

• Straddles profit if the underlying moves significantly, regardless of direction.

• Strangles are similar but use out-of-the-money options, reducing cost and widening the profit zone.

Why it works: These setups thrive when markets move more than expected. They rely on the magnitude of movement, not direction, and benefit from IV expansion.

E. Rangebound Market + High IV

When price is trapped in a range but volatility is still elevated, the market is overpaying for movement it’s unlikely to deliver. This is ideal for neutral premium-selling strategies:

• Iron condors collect premium as long as the price stays within a defined range.

• Short strangles (for advanced traders with high risk tolerance) offer wider breakevens and larger credit, but with undefined risk.

Why it works: You’re taking the other side of overpriced options in a market that’s not breaking out. Theta decay and stable price action work in your favor.

Core Takeaway

Edge doesn’t just come from spotting a setup. It comes from choosing the right tool to express that setup within the current market regime.

A great idea executed with the wrong strategy can still lead to a poor outcome. But a good setup, paired with a strategy that matches volatility, direction, and time horizon, gives you the highest probability of success—with defined risk and clear expectations.

This is where amateur traders get shaken out—and professionals thrive. They don’t just chase signals. They interpret conditions and deploy capital with surgical precision.

Final Thoughts: Process Over Prediction

If you’re serious about becoming a professional-level options trader, you need more than opinions or forecasts. You need a repeatable process.

This daily checklist, grounded in the methodology behind The Implied Truth, is built to help you find those moments when the data aligns in your favor. It gives you structure without rigidity—and that’s where consistency begins.

The market will always change. Your edge is in how you prepare for it.

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Andy Crowder

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