# Options Education Curriculum — Matt Hoffmann ## Ground Rules (Non-Negotiable) 1. **Paper trade first.** Robinhood paper trading or ThinkOrSwim onDemand. 2. **No naked options.** Defined risk only until you've logged 50+ trades. 3. **Max 2-3% of portfolio per trade.** Position sizing > picking direction. 4. **If you can't explain max loss in one sentence, don't open it.** 5. **Log every trade.** Win/loss, thesis, emotion, lesson. Review weekly. --- ## Phase 1: Foundation (Weeks 1-4) ### Week 1: Cash-Secured Puts (CSP) **Concept:** Sell a put option. If stock stays above strike, you keep premium. If it drops below, you buy shares at a discount. **Why start here:** - Natural extension of your "blood in the streets" philosophy - You already want to buy dips — CSP pays you to wait - Defined risk: max loss = strike price - premium received **Paper Trade Assignment:** - Pick 3 stocks you'd happily own at lower prices - Sell 30-45 DTE CSPs at ~0.30 delta (30% probability of ITM) - Target: 1-2% monthly premium / capital at risk - Log: ticker, strike, premium, delta, breakeven, "would I buy here?" **Key Metric:** Annualized return on capital at risk. Aim for 15-25%. **Review Questions:** - Did assignment happen? Would you still want the stock? - If not assigned, was premium worth the capital tie-up? - What's your re-entry plan if the stock keeps falling? --- ### Week 2: Covered Calls (CC) **Concept:** Own 100 shares, sell a call above current price. If stock stays below, keep premium. If it rips through, shares called away at profit. **Why this matters for you:** - You hold TSLA since 2018 — likely large unrealized gain - CCs monetize a position without selling - "Income from a position I'd hold anyway" **Paper Trade Assignment:** - On a position you own (or simulate with paper shares) - Sell 30-45 DTE calls at ~0.30 delta, 10-20% OTM - Target: 0.5-1.5% monthly premium - Log: what would you do if shares get called away? **Key Decision:** Are you willing to let shares go at the strike? If not, don't sell the call there. **Review Questions:** - If called away, is your cost basis still profitable? - If not called away, did premium justify capping upside? - How do you feel about the "opportunity cost" of capped gains? --- ### Week 3: The Wheel **Concept:** CSP → if assigned, now own shares → sell covered calls → if called away, back to CSP. **Why this is powerful:** - Generates income in all three states: waiting, owning, exiting - No directional bias required — just pick good stocks - Your barbell strategy's "safe" end could run a wheel on blue chips **Paper Trade Assignment:** - Run a full wheel cycle on one ticker - Document each leg: CSP, assignment, CC, exit - Track total premium collected vs. buy-and-hold return **Key Metric:** Total annualized return from premium + any share appreciation. --- ### Week 4: Risk-Defined Spreads **Concept:** Sell one option, buy a farther OTM option as insurance. Limits both profit and loss. **Types:** - **Put Credit Spread (PCS):** Bullish/neutral income. Max profit = net credit. Max loss = width - credit. - **Call Credit Spread (CCS):** Bearish/neutral income. **Why this is your "options training wheels":** - Defined risk — you know max loss before clicking "submit" - Lower capital requirement than CSP/CC - Can express directional views without concentration **Paper Trade Assignment:** - 5 PCS trades on names you follow - Track: credit received, max risk, breakeven, probability of profit - Compare: spread return vs. CSP return on same capital --- ## Phase 2: Income Generation (Weeks 5-8) ### Week 5: Advanced Wheel & Rolling - Rolling CSPs down and out when tested - Rolling CCs up when stock rips - When to take profits early (50% of max profit) - When to defend vs. when to accept assignment ### Week 6: Ratio Spreads - **Call Ratio Spread:** Buy 1 lower strike call, sell 2 higher strike calls - Asymmetric upside — fits your "moonshot" psychology - Risk: unlimited above upper strike (requires management) ### Week 7: Diagonal Spreads - Different strikes AND expirations - Sell near-term, buy longer-term - Harvest time decay while maintaining directional exposure ### Week 8: Collars - Own shares + sell CC + buy protective put - "Insurance with a deductible" — caps downside, caps upside - Perfect for concentrated positions (TSLA insurance) --- ## Phase 3: Advanced (Weeks 9-12) — Only if Phases 1-2 mastered ### Week 9: Iron Condors - Combine PCS + CCS on same underlying - Profit from range-bound movement - High probability, low reward — requires discipline ### Week 10: Calendar Spreads - Same strike, different expirations - Play volatility term structure - More complex — requires understanding of IV skew ### Week 11: Straddles & Strangles - Non-directional volatility plays - Buy: bet on large move (earnings, events) - Sell: bet on range-bound (high probability, defined risk) ### Week 12: Portfolio Integration - How much of total portfolio in options strategies? - Correlation between underlying positions - Tax implications (short-term gains, wash sales) - Building a repeatable system vs. one-off trades --- ## Weekly Structure **Monday:** Review open positions, check earnings calendar, plan week's trades **Wednesday:** Mid-week check — any positions needing adjustment? **Friday:** Weekly log review, P&L tracking, emotion journal **Sunday:** Read/watch one educational resource (see below) --- ## Resources **Books:** - *The Options Playbook* — Brian Overby (structured, beginner-friendly) - *Trading Options Greeks* — Dan Passarelli (deeper math when ready) **YouTube Channels:** - Tastytrade (tastytrade.com) — research-backed strategies, free - Project Finance (beginner-friendly walkthroughs) **Practice Platforms:** - Robinhood (paper trading, simple interface) - ThinkOrSwim onDemand (replay historical markets) --- ## Success Metrics Before moving to next phase: - [ ] 20+ paper trades logged with thesis and outcome - [ ] Can calculate max profit/loss/breakeven mentally - [ ] Understand how delta/theta/vega affect your position - [ ] Have a written adjustment plan BEFORE entering every trade - [ ] No FOMO trades. No revenge trades. No "let's see what happens." --- ## Risk Budget for Live Trading (When Ready) | Account Size | Max Options Allocation | Per-Trade Max | Monthly Max | |--------------|------------------------|---------------|-------------| | $50K | $5K-7.5K (10-15%) | $1,000-1,500 | $3,000 | | $100K | $10K-15K (10-15%) | $2,000-3,000 | $6,000 | | $250K+ | $25K-37K (10-15%) | $5,000-7,500 | $15,000 | **Start live at 50% of these limits for first 3 months.** --- ## Trade Journal Template ``` Date: ___________ Ticker: ___________ Strategy: CSP / CC / Spread / Other Thesis: ___________ Entry: ___________ Max Profit: ___________ Max Loss: ___________ Breakeven: ___________ Probability of Profit: ___________ Days to Expiration: ___________ Adjustment Plan: ___________ Exit Plan: ___________ Outcome (fill after close): - Closed at: ___________ - P&L: ___________ - Held to expiration? Y/N - Emotion during trade: ___________ - Lesson: ___________ ``` --- ## Questions for the Director 1. **Which position would you want to practice covered calls on first?** (TSLA is obvious candidate but emotion may be high) 2. **Paper trading platform preference?** Robinhood (simple) vs. ThinkOrSwim (more tools) 3. **Time commitment:** Can you dedicate 2-3 hours/week to this? Options require more monitoring than buy-and-hold. 4. **Are you okay with capping upside on existing positions?** This is the psychological test for covered calls. Ready to start Week 1 when you are.