It cannot be said simpler: A written trading plan is mandatory to succeed as an options trader!
But how do we build a solid trading plan? In this interview, professional options trader Nick Salvatore from SMB Capital outlines the steps.
Watch how to create an options trading plan
The video was produced with Streamyard – an easy-to-use and amazing tool for live streaming and recording.
Nick Salvatore
Nick Salvatore is a professional options trader at SMB Capital, focusing on delta-neutral strategies with 0-60 days to expiration. Since 2019, he has traded and educated aspiring traders through SMB’s programs, blending practical experience with teaching.
Nick can be reached at: nsalvatore(at)smbcap.com.
Why a trading plan is essential
Nick stresses that a trading plan is the foundation of successful trading, preventing impulsive decisions that lead to losses. Without a plan, traders risk gambling rather than trading strategically, especially during unexpected market moves like a 400-point intraday swing. A written trading plan outlines entries, exits, and profit targets, ensuring discipline and preparedness.
Key components of a trading plan
A trade plan is a living document that starts with a thesis—the reasoning behind your strategy, tailored to market conditions or systematic approaches. In the video, Nick outlines the following steps when making a good trading plan:
- Step 1: Formulate a thesis. Describe the underlying theory or rationale behind the trade strategy.
- Step 2: Define your entry criteria. Specify signals, strategy type (e.g., iron condor, butterfly), position sizing, delta, etc.
- Step 3: Define your trade management rules. Write down your rules for managing the trades, such as adjusting your positions when the market shifts.
- Step 4: Define your exits: profit targets and losses. Write down your rules for when you will close the trade, both when you will take profit and what is the max loss you will accept.
- Step 5: Decide use of capital, max drawdown and performance metrics. Write down how much capital you will set aside for this strategy and how you will measure if you are successful.
Find Nick’s template for what should be included in a professional trading plan here.
Always backtest!
Backtesting is crucial for refining a trading plan and ensuring its reliability.
Nick dedicates an hour daily to backtesting, using tools like Options Omega for automated tests and Option Net Explorer for manual analysis.
Manual backtesting helps traders understand the psychological impact of drawdowns, while automated tests speed up validation, he says. Avoiding curve-fitting—over-optimizing for specific conditions—is key to creating a robust trading plan that holds up over time.
Get 50% of on the backtesting tool Option Omega with this link
Managing multiple trading plans
Many retail traders employ multiple strategies, and Nick advises ensuring low correlation to smooth out equity curves.
For example, combining delta-neutral trades with hedges protects against market surprises. Each strategy requires its own trading plan, with daily “if-then” scenarios to guide decisions. Diversifying across assets and timeframes (e.g., 1-day vs. 60-day trades) reduces risk and enhances consistency.
Where to learn more
Nick naturally recommends the education program run by his own employer. And he emplasizes that no one should trade alone. Find a community of other options traders, either locally where you live or online.
These options trading books are recommended in the video:
- Mike Bellafiore: One Good Trade
- Van K. Tharp: Trading Beyond the Matrix
- Brett N. Steenbarger: The Psychology of Trading
- John Coates: The Hour Between Dog and Wolf
