Almost every guide to trading says to have a trading plan. Very few show what one looks like. As a result, most traders either have nothing written down or a few vague intentions that change with each session.
This article sets out a practical template for an options trading plan, section by section, with the questions each part should answer. Fill it in once, keep it to two pages, and review it on a fixed schedule.
Section 1: purpose and capital
Why am I trading options? Write one sentence. Learning, hedging existing holdings, generating supplementary income, or something else. The answer shapes everything that follows.
How much capital is in this account? A specific figure, deposited once.
Is it money I can lose entirely? If the answer is not a clear yes, the amount is wrong.
Will I add more? Write the rule. For most people, the right rule is no additions after losses, and additions only after a scheduled review shows the plan is working.
Where does profit go? Decide whether gains stay in the account or are withdrawn periodically to long-term investments.
Section 2: what I trade and how
Instruments. Which underlyings — for example, one or two major indices only. A short list prevents scattered attention.
Expiries. Which expiries you will use, and the rule for avoiding the final days if you are a buyer.
Structures. Which positions you will use, such as bought options, debit spreads or credit spreads, and which you will not, such as naked short options.
Setups. For each structure, the specific conditions under which you will enter. Written precisely enough that someone else could check whether a trade met them.
Trading hours. When you will place trades and when you will not — for example, no new positions in the first fifteen minutes or in the last half hour.
What I will not do. A short list of explicit prohibitions: no trades from group messages, no market orders in options, no holding stock options into expiry week, no averaging down.
Section 3: sizing, entries and exits
Risk per trade. The maximum loss on any single trade, as a rupee figure or a small percentage of capital.
How size is calculated. For bought options, the premium is the maximum loss, so size is the number of lots whose total premium fits the limit. For spreads, the maximum loss is the spread width minus credit or plus debit.
Entry method. Limit orders, basket orders for multi-leg positions, and the price rule you will use.
Exit rules. For each trade: the loss exit, the profit exit, and the time exit — the date by which you close regardless.
Expiry plan. What happens to each kind of position on its final day: closed, rolled or allowed to expire.
Writing exits at the same time as entries is the single most effective part of any plan. A trade without a written exit is a trade waiting for an emotional decision.
Section 4: limits beyond the single trade
Daily loss limit. If reached, close positions and stop trading for the day.
Weekly or monthly loss limit. If reached, reduce size or pause until the next review.
Activity cutoff. A total loss from the plan's start date at which you stop trading derivatives for several months and reassess completely.
Maximum open positions. A cap on how many positions can be open at once, to prevent hidden concentration.
Rules after losses. For example, half size for the session after a daily limit is hit, and no new strategies for a week after a large loss.
These limits matter more than any setup. They are what prevent one bad week from ending the whole activity.
Why most trading plans fail
Having a written plan is a large step. Keeping it working is harder. Plans usually fail for a handful of predictable reasons.
Vague setups. “Buy when the trend is strong” cannot be checked. If a setup cannot be verified by somebody else from your notes, it is a feeling, not a rule.
Changes made mid-session. A rule abandoned during a losing trade is no longer a rule. Changes belong at the review, with the journal open.
Too much complexity. A plan with eight structures and twelve conditions will not be followed under pressure. Start with one or two structures and add only after the review shows the first ones work.
No review. A plan that is never compared with results drifts until it describes intentions rather than behaviour.
Limits without consequences. A daily limit that is “usually” respected is not a limit. Decide in advance what happens when it is broken — for example, a full day off the following session.
Keep the plan where you trade, read it before each session, and treat any deviation as something to record, not something to hide.
Section 5: records and review
Journal. For every trade: date, instrument, structure, entry and exit prices, size, reason, planned exits, actual outcome, costs, and whether the plan was followed.
Monthly review. On a fixed date, calculate win rate, average win, average loss, expectancy after costs, largest loss, and the share of trades that followed the plan.
Plan changes. Change the plan only at scheduled reviews, never during a session. Record what changed and why.
Six-month assessment. Compare results against the purpose in section one and the activity cutoff in section four. Decide whether to continue, adjust or stop.
A short worked example of a filled-in plan might read: Purpose: learn and test defined-risk index spreads. Capital: a fixed sum deposited once, no top-ups. Instruments: one major index, monthly expiry. Structures: debit and credit spreads only. Risk per trade: a small fixed amount. Daily limit: two losing trades. Activity cutoff: a set total loss from the start date. Review: first Saturday of each month.
An account with trade reports for your journal
Download every trade with its charges to review against your plan. Free to open
This is educational material, not advice, and no position or approach is recommended. We run no tips group and no signal service, we manage nobody's money, and no return is promised. Derivatives can lose more than the amount blocked against them.
Disclosure: the account-opening link on this page is under Atul Shrivastava's Zerodha Authorised Person registration (NSE AP Reg: AP2516003481; Zerodha Broking Ltd. SEBI Reg: INZ000031633) and earns a revenue share. TheFinBaba is not a SEBI-registered Investment Adviser — this content is educational, not investment advice.
Frequently Asked Questions
What should an options trading plan include?
Purpose and capital, instruments and structures, entry setups, sizing, exit rules including an expiry plan, loss limits beyond single trades, and a journal with scheduled reviews.
How long should a trading plan be?
Short enough to read before each session, typically one or two pages. Precision matters more than length.
When should I change my trading plan?
Only at scheduled reviews, never during a session. Record each change and the reason for it.
What is the most important part of a trading plan?
Exit rules written at the same time as entries, and loss limits beyond the single trade. They prevent emotional decisions and stop one bad week from ending the activity.
What is an activity cutoff?
A total loss from the plan's start date at which you stop trading derivatives for several months and reassess completely, separate from daily or per-trade limits.
Related Reading
- Deciding what happens on the final day
- Writing exits for a backspread
- The journal behind the plan
- Sizing options trades properly
- Setting a cutoff for the activity
- The numbers for the monthly review
Disclaimer: TheFinBaba provides educational content only - this is not investment advice. Trading involves risk of loss.
