Book 2: Experimental Defined-Risk Simulation
Simulation Rules
- Capital: $10,000 virtual (separate from Book 1)
- Strategy: Defined-risk spreads, directional bets, volatility plays
- Execution: Purely simulated — no Robinhood interaction (Level 2 restriction)
- Tracking: Midas ledger + market data mark-to-market
- Learning goal: Understand spread mechanics, Greeks behavior, risk profiles
- Target: 50 simulated trades before considering live defined-risk strategies
Book 2 Capital Structure
| Tier | Allocation | Purpose | Max Concurrent |
|---|---|---|---|
| Active positions | $6,000 (60%) | 4-6 spread positions at $500-$1,500 risk each | 4-6 |
| Reserve | $2,500 (25%) | Opportunity fund, adjustments | — |
| Loss buffer | $1,500 (15%) | Absorb max loss on 2-3 positions | — |
Portfolio Ledger
Trade #1: TSLA $220/$210 Put Credit Spread — OPEN
| Field | Value |
|---|---|
| Ticker | TSLA |
| Structure | Put Credit Spread |
| Short leg | Sell $220 put, June 20, 2026 |
| Long leg | Buy $210 put, June 20, 2026 |
| Entry date | 2026-05-06 |
| DTE at entry | ~45 |
| Net credit | $1.50 ($150 per spread) |
| Max risk | $850 ($1,000 width − $150 credit) |
| Breakeven | $218.50 |
| Current TSLA | $394.87 |
| Distance to short strike | 44.3% below current |
| Estimated delta | ~0.05-0.08 |
| Estimated theta | ~$0.10-$0.15/day |
| Estimated vega | ~-0.06 |
| Status | ✅ SIMULATED OPEN |
Rationale:
- TSLA is a known holding — teaches hedging/income on existing positions
- 44% drop to short strike = extreme buffer
- Low delta = low probability of ITM
- Defined risk = max loss $850 vs. $22,000+ on a CSP at $220
What this teaches vs. CSP:
| CSP | Put Credit Spread |
|-----|-------------------|
| Must own stock if assigned | Never own stock |
| Max loss = strike × 100 | Max loss = width − credit |
| High capital requirement | Low capital requirement |
| Theta decays on full notional | Theta decays on spread differential |
| One Greek (short put) | Net Greeks (short − long) |
Trade Quality Assessment
✅ Distance: 44.3% OTM — extraordinarily safe on a non-crash thesis
✅ Defined risk: $850 max — know your worst case upfront
✅ Capital efficiency: 1.76% return on risk in 45 days, or ~14% annualized
⚠️ Low premium: $150 on $850 risk = 17.6% return if max profit. But probability of max profit is very high.
⚠️ Wide strikes: $10 width is narrow. If TSLA gaps below $210, full loss immediately.
⚠️ Liquidity: TSLA options are liquid, but spread execution depends on bid-ask on both legs.
Scenario Analysis
| TSLA at expiry | Outcome | P&L per spread |
|---|---|---|
| $400+ | Both puts expire worthless | +$150 (max profit) |
| $300 | Both puts expire worthless | +$150 (max profit) |
| $225 | Short put ITM, long put OTM | +$150 − ($220−$225) = −$350 |
| $220 | Short put ATM, long put OTM | +$150 − $0 = +$150 (breakeven zone) |
| $215 | Both puts ITM | +$150 − ($220−$215) = −$350 |
| $200 | Both puts ITM | +$150 − $1,000 = −$850 (max loss) |
| $150 | Both puts ITM | −$850 (max loss) |
Key insight: Below $210, you lose the same $850 whether TSLA is $209 or $50. The long put caps your loss.
Greeks Deep Dive (Simulated)
| Greek | Short $220 Put | Long $210 Put | Net Spread | Interpretation |
|---|---|---|---|---|
| Delta | −0.08 | +0.03 | −0.05 | Slight bearish bias — profits if TSLA rises |
| Gamma | −0.002 | +0.001 | −0.001 | Minimal acceleration risk |
| Theta | +0.18 | −0.08 | +0.10 | $10/day time decay in your favor |
| Vega | −0.25 | +0.15 | −0.10 | Short vol — wins if IV drops |
Note: These are estimates. Actual Greeks depend on IV, skew, and time. In simulation, I'll update weekly with theoretical marks.
Adjustment Triggers
| Trigger | TSLA Price | Action |
|---|---|---|
| Comfort | $250+ | No action — deep OTM, theta working |
| Watch | $230 | Short strike approaching. Monitor delta expansion. |
| Caution | $220 | Short strike hit. Consider rolling out or accepting max loss. |
| Breach | $215 | Both legs ITM. Full loss likely. Close or hold to expiry. |
| Crash | $200 | Max loss realized. Review thesis. |
Capital Math
| Position | Risk Capital | Status |
|---|---|---|
| TSLA 220/210 PCS | $850 | ✅ Simulated open |
| Total at risk | $850 | 8.5% of $10K book |
| Available | $9,150 | For 4-6 more positions |
Book 2 Velocity Tracker
| Trade # | Date | Structure | Status |
|---|---|---|---|
| 1 | May 6 | TSLA 220/210 PCS | ✅ Simulated open |
| 2 | TBD | TBD | ⏳ Pending |
Progress to 50: 1 / 50 (2%)
Combined with Book 1: 3 / 100 total simulated trades
Key Differences from Book 1
| Dimension | Book 1 (CSP) | Book 2 (Spreads) |
|---|---|---|
| Capital per trade | $1,300-$10,000 | $500-$1,500 |
| Velocity | ~2 trades/month | ~4-6 trades/month |
| Max loss | High/unlimited | Defined/capped |
| Psychology | Assignment, ownership | Directional wrongness, capping |
| Greeks complexity | Simple (short put) | Net Greeks (spread differential) |
| Robinhood level | Level 2 ✅ | Level 3 required ❌ |
Notes on Simulation Mechanics
Since Book 2 is pure simulation:
- Pricing: I'll use Yahoo Finance data + Black-Scholes estimates for theoretical marks
- Execution: Assume mid-market fills (no slippage unless noted)
- Updates: Weekly mark-to-market in our regular check-ins
- Adjustments: You can request simulated rolls, closes, or modifications anytime
- Reality gap: Real spread execution involves bid-ask on both legs, early assignment risk on short leg, and margin requirements. Simulation smooths these. Always remember: simulated P&L is optimistic by 5-15% vs. live.
Director Decisions — Post-Execution
-
How does defined risk feel? Knowing max loss is $850 vs. CSP's theoretical unlimited — more or less comfortable?
-
Spread width preference: $10 width (220/210) is conservative. Wider = more credit, more risk. Narrower = less credit, less risk. Preference?
-
Directional bias: This trade is mildly bearish (profits if TSLA stays flat/rises). Want to try a bullish call spread next, or stay with put spreads?
-
Iron condor curiosity: Once you have 2-3 spread trades, we can combine put + call spreads into an iron condor. Interested?
Book 2 opened: 2026-05-06
Next update: Friday May 9 (combined Book 1 + Book 2 review)