The Final Checklist: What to Look for Before Placing Every Options Trade

The markets don’t care how confident you feel about a trade. They don’t reward effort, deep research, or how long you've stared at a chart. They reward discipline, probability, and execution.

For traders, the biggest risk isn’t necessarily the trade itself—it’s inconsistency. Most losses don’t come from bad setups; they come from abandoning a process. The best traders don’t just place trades—they filter trades using a predefined system that eliminates emotion and focuses only on high-probability opportunities.

A pre-trade checklist is one of the most effective tools for ensuring consistency. It forces you to validate every trade through objective criteria rather than impulse. And for options traders, where probability and volatility play a defining role in profitability, integrating key metrics like put/call ratio, liquidity, IV Rank, IV Percentile, and Expected Move ensures that trades are placed in an optimal environment.

If you cannot answer these questions with confidence, don’t place the trade.

1. What is My Edge?

A trade without an edge is a bet. A trade with an edge is a calculated decision backed by probabilities. Before entering, ask:

• Am I taking advantage of a volatility skew?

  • If selling options, is IV Rank above 50, signaling that implied volatility is elevated compared to historical levels?

  • If buying options, is IV Rank low, ensuring I’m not overpaying for extrinsic value?

• Is IV Percentile confirming the setup?

  • A high IV Percentile (>80%) means implied volatility is near the upper range of the past year, making premium-selling strategies more attractive.

  • A low IV Percentile (<20%) suggests volatility is suppressed, reducing the edge in short premium trades and favoring long volatility strategies.

• Does the Expected Move align with my outlook?

  • If selling premium, is the underlying unlikely to breach the Expected Move by expiration?

  • If trading directionally, does the Expected Move justify the risk/reward?

If IV Rank, IV Percentile, and Expected Move don’t support the trade, it’s not a high-probability setup.

2. What is My Risk?

No trade is risk-free, but the worst trades are the ones where risk is undefined.

Position Sizing: Are You Protecting Capital?

Professional traders don’t measure success by individual trades. They measure it by long-term expectancy—which starts with risk control.

• What’s the maximum dollar loss I can tolerate?

• Is my position size small enough that even a worst-case scenario won’t materially impact my portfolio?

• Am I overleveraging? Options can create hidden exposure—am I accounting for that?

Managing Volatility-Based Risk

For options traders, volatility expansion can kill an otherwise good trade. Before entering:

• If selling options, am I exposed to IV expansion risk?

• If buying options, am I prepared for IV crush post-event (earnings, FOMC, CPI)?

If the risk isn’t explicitly defined before entry, the trade isn’t worth taking.

3. What is My Exit Strategy?

Most traders focus only on how to get in. The best traders focus on how they’ll get out.

Profit Targets: When Do I Take Gains?

• Options Sellers: Will I take profits at 50% of max profit, or am I holding to expiration?

• Directional Traders: Will I trail a stop, use a volatility-based exit, or scale out incrementally?

Stop-Loss Rules: When Do I Cut Losses?

• If I’m selling premium, do I have a risk-based exit? (e.g., closing at 2x the credit received)

• If I’m trading directionally, do I have a defined stop-loss?

IV Consideration: If implied volatility drops, am I willing to hold longer, or is my trade structure invalidated? If IV spikes, am I adjusting, hedging, or closing?

A trade without a pre-defined exit is just an open-ended risk position.

4. Does Market Context Align with My Trade?

A great setup in the wrong environment is still a bad trade.

Before execution, check:

• Volatility Regime:

  • Are we in a high IV environment (favoring mean reversion and premium selling) or a low IV regime (favoring trend-based moves and long options)?

• Breadth & Sentiment:

  • Is the market overextended? Is there a risk of mean reversion against my trade?

• Event Risk:

  • Am I placing a trade just before major news (earnings, Fed, inflation reports) that could drastically impact IV or price action?

If the trade doesn’t align with the broader market structure, it might be better to wait for a more favorable setup.

5. Have I Checked Liquidity and Slippage?

One of the most avoidable trading mistakes is ignoring liquidity.

Key Liquidity Metrics:

• Bid-Ask Spread: Am I overpaying on entry and giving up too much on exit?

• Open Interest & Volume: If I need to exit quickly, can I do so without excessive slippage?

IV Consideration: If I’m trading a low-liquidity option in a high IV environment, am I prepared for extreme swings in pricing?

If liquidity is poor, reconsider the trade—because getting in is easy; getting out at a fair price is what matters.

6. Am I Following My System—Or My Emotions?

The final checkpoint is psychological: Am I placing this trade based on logic or impulse?

Ask yourself:

• Does this trade align with my strategy?

• Would I take this exact same setup 100 times over in the same conditions?

• Is this a reactionary trade (FOMO, revenge trading, overtrading), or is it methodical?

If a trade doesn’t meet your systematic criteria, skip it. The best traders understand that the easiest trade to manage is the one you never take in the first place.

Final Thoughts: Process Over Prediction

The best traders aren’t the ones who can predict the next market move. They’re the ones who execute a process relentlessly, filtering out the noise and focusing only on trades with clear, quantifiable edges.

A pre-trade checklist isn’t just about improving results—it’s about enforcing consistency. And consistency is what separates the elite from the average.

Before placing your next trade, run through this checklist. If every box is checked, you have a well-structured, high-probability trade. If not, the best decision might be the hardest one—doing nothing at all.

Because in the markets, as in life, the best opportunities come to those patient enough to wait.

Probabilities over predictions,

Andy Crowder

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