The J. Arthur Squiers Trading plan: Cheat Sheet

I have been asked to create a cheat sheet for my trading plan, something that can be referenced when trading without sifting through all of the explanations in my other blog posts. I thought that was a great idea, so here it is.

Trade Strategy

  • Strangles in liquid ETFs
  • 100-150 days until expiration
  • 10 delta options, or less

Trade Entry

  • Start with the highest IVR ETFs
  • Verify the options are liquid, preferring less than $5 bid/ask spread.
  • Aim to take in $100-150 credit on the entire strangle, per $50K in account size.
  • Use an expiration cycle that is closest to 150 days till expiration without going further out than that, but never less than 100 days till expiration.

Defending Trades

  • If the delta of an option becomes 2 times what it was on initial trade entry, roll the untested side in to 3/4 the delta amount of the tested side.
  • If the delta of an option becomes 4 times its original delta, again roll the untested side to 3/4 the delta amount of the tested side.
  • If the delta of an option becomes 5 times its original delta, perform the same defense as above.

When to close the trade

  • If the overall trade (including rolls) reaches a profit of 50% of the original credit received.
  • If the overall trade (including rolls) reaches a loss of 2x the original credit received.
  • If one of the strikes in the strangle goes in the money.
  • If the trade was defended once and the overall trade (including rolls) reaches a profit of 25% of the original credit received. *NEW*
  • If the trade was defended more than once and the overall trade (including rolls) reaches a profit that is more than the commissions that have been paid for the overall trade. *NEW*
  • If the options on the trade have less than 21 days left until expiration.
  • If the trade has less than 50 days left until expiration and the overall trade (including rolls) reaches a profit that is more than the commissions that have been paid for the overall trade.

Overall Portfolio

  • Do not use more than half of the buying power in the account at a time.
  • Try to diversify the underlyings used, such as gold, bonds, silver, oil, etc.

…. and that’s my cheat sheet. For explanations, please see my other blog posts that outline my plan. Happy trading!


26 comments on “The J. Arthur Squiers Trading plan: Cheat Sheet

  1. steven greenspan

    are u still trading options on commodities as well?’


  2. Pingback: When the bears come out – Fire by Arthur

  3. John Einar Sandvand

    Thanks for very interesting posts!
    One question: How would this trade plan work if you sold iron condors instead of strangles?


  4. Shay Hazan

    Thanks for sharing !
    One question…
    You mention that you close the trade when overall trade reaches a loss of 2x the original credit received.
    Assuming you sell call/put in 10 delta, then in case it moves against you, and one of the options researches even 10 delta, it usually more than 2X of the credit received, no ?


    • Usually, a strangle will not reach a loss of 2x the initial credit received until one of the options goes in the money. Even less likely if you are defending the trade by rolling in.


      • Shay Hazan

        What do you check before entering a trading ? e.g. IVR…
        In addition, can you please share what is the expected % return on a portfolio (what percentage of the portfolio is invested ?) ?


      • I look for the highest IVR ETFs in my watchlist for which I don’t already have a position. Liquidity is also a major factor, as well as whether there is an option expiration within my desired range.

        Hard to give an expected % return on the portfolio. Over the past 3 years, I have averaged 22% — yet I would never suggest that others could expect the same. I try to stay around half of the buying power in my portfolio being used.


      • Shay Hazan

        Very nice !
        I hope you don’t care I’m asking so many questions… 🙂
        What did you do in the recent years when IVR was very low ? most of the time, there was no ETF (besides EWZ/EWW) with IVR above ~30.
        Do you trade anyway or you just waiting (and most of the time don’t trade) ?


  5. Matt White

    What is your historical annual rate of return using this strategy?


  6. Justin Seitz

    Are you implementing exiting when your strike is tested?


    • Yes, I am. That doesn’t happen very often, but I’m getting out of the trade when it does. So far, it seems to really help control the volatility of the portfolio.


  7. Justin Seitz

    Thanks ya my IYR trade is coming close to touching my call strike opening the trade was at the 16 delta so I am already learning why you should not go any closer than the 10 delta


  8. Scott Haugh

    I have a question on how much to allocate to this strategy. I see in your Cheat Sheet that it says do not use more than half your buying power in the account at a time. As an example, I will be using half of one of my accounts for this strategy. The Net Liquidation Value is 89,314 with 83,500 currently in cash. I called IB and I have about 87k of margin available. Since I am using half this account that would be 43.5k total, so no more than 22k margin for all positions? I just looked at an IWM 10D strangle and margin req was 1728. Looks like maybe 10-12 positions total at one time open.
    Do you check Delta at the end of the day and adjust the following day or once hit intraday, make the adjustment then?


    • Hi Scott. I try not to use more than half of my “buying power” or “available margin” (depending on what your broker calls it). I sometimes get more aggressive and use a little more if there is a lot of opportunity in that market, but that is based on experience. Usually, for a 50K account, I am able to have 20-25 positions on at a time.

      I will make adjustments based on delta during the day, but I don’t pounce on them like a cat. I tend to make sure they stay in the range for a bit of time and that it’s not a fluke. The only triggers jump on immediately are the max loss or profit target.


      • Scott Haugh

        Thanks. Also, I see sometimes you use more than one contract to get to the $100-150 range for the trade. I am now looking at XLF and the 10 delta pays about .27 total. Underlying is only at $26.50. Is this too little or would someone just buy 4 or 5 of each? Or do you use some kind of minimum ratio, like total has to be 1% or 2% of underlying value?


      • I do sometimes add more contracts to get in the credit range I want (or even nudge in to a slightly higher delta) , however XLF options just don’t have enough value right now to justify it for me. For a credit range of $100-150 I like each 1 contract strange to have at least $30 in credit.


      • Scott haugh

        Thanks that really helps.


      • Hi;

        How many days you reach 50% on average?


  9. J., I did some quick and dirty calculations in an attempt to come up with a target credit based on the BPR for each trade (in an effort to back into your IRR). If I have it right, it seems like the ratio is about 10% credit to BPR. So, if my trade will require $1500 in BPR, I’ll try to get $150 in credit for the trade. Does that seem right to you?

    The reason that I’m looking at it this way is that I’m trying to ensure that I’m getting adequate credit to put on the trade (vs. other possible trades).

    In case you’re interested, the way that I came to this conclusion is by looking at your example $50k account which returns $1,000 per month (24%). You had stated that, on average, you try to get $150 in credit and close at 50% (so $75 return in 39 days). If I convert that to a monthly (30 day) profit target, it’s about $58. To reach $1000 in a month, you’d need 17 or 18 trades. You also don’t let BPR on the account go below 50%. So, that’s $12,500 in BPR active at any one time. To squeeze 17 or 18 positions into that BPR, each trade needs to be around $700 in BPR (or about 10%… more like 9% actually).


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