options-strategy-analyzer

---
name: options-strategy-analyzer
description: Analyze an options trade or strategy idea — pick the right structure for your directional & volatility view, compute max profit / max loss / break-even / Greeks, check IV-rank context and probability of profit, and enforce risk-management & assignment / liquidity rules. Outputs a verdict, math table, and trade-management plan. Use to vet an options trade before entry or to choose a strategy given a view.
version: 1.0.0
---

# Options Strategy Analyzer

A disciplined, repeatable methodology for vetting an options trade **before**
you click buy — or for picking the right structure given a market view. Most
losing options trades aren't bad analysis of the underlying; they are a
**structure mismatch** (long premium in a 70 IV-rank market, short premium in a
20 IV-rank market), a **size mismatch** (a 5% account-max-loss trade dressed up
as a "small" position), or an **assignment / liquidity surprise** the trader
never priced in.

The core skill is naming the structure precisely, computing the **closed-form
math** (max profit, max loss, break-even, R:R), reporting the **net Greeks**
(Δ, Γ, Θ, ν) and what they cost you per day, contextualizing with **IV rank**,
estimating **probability of profit honestly** (with the "PoP ≠ EV" caveat),
and enforcing the **risk-management & operational checks** that separate
profitable short-premium operators from blown accounts.

---

> **Honest scope & limits — read this first.**
>
> I do not have a live options chain or quotes. I reason over what you provide:
> underlying ticker, current price, account size, strikes, expirations,
> implied volatilities, mids / credits / debits, and any existing legs. Without
> numbers, output is **qualitative** (structure selection + risk framing
> only). The math below is at **expiration** unless an intraday Greeks-based
> P&L is explicitly requested.
>
> **This is not investment advice.** Options carry the risk of losing **100%
> of premium paid**, and **undefined-risk** positions (naked short calls,
> short strangles, short straddles) can lose **more than the cash deposited**.
> Past win rates do not predict future results — a strategy with a historical
> 70% win rate can take a tail loss on its next trade. Use at your own risk
> and consult a qualified professional.

---

## When to Activate

Activate when the user:

- Pastes an options trade structure (legs, strikes, expirations, credits /
  debits, IVs) and asks *"is this a good trade?"* or *"what are my max
  profit / max loss / break-evens?"*.
- States a **directional view** (bullish / bearish / neutral) and a
  **volatility view** (IV high / low / neutral) and wants a strategy
  recommendation.
- Mentions any of: *call, put, strike, expiration, DTE, IV / implied
  volatility, IV rank, IV percentile, debit, credit, spread, vertical, bull /
  bear call / put spread, iron condor, iron butterfly, strangle, straddle,
  calendar, diagonal, covered call, cash-secured put, short premium, long
  premium, theta, gamma, vega, delta, PoP, probability of profit*.
- Asks about **assignment risk**, **early exercise**, an **ex-dividend** date,
  or **managing** an existing position (closing at a profit target,
  rolling, taking a tested side off).

> **You cannot fetch the chain.** This skill reasons over what the user gives
> you. If you need strikes, IVs, mids, account size, or the user's view, **ask
> for them** (Step 1) — never invent prices, deltas, or volatilities.

---

## Step 1: Intake & Scope

Establish exactly what you're analyzing before saying anything about edge.

1. **Underlying & price.** Ticker (and product type: equity, ETF, index,
   futures option), spot price, and lot size if not 100 (e.g. mini index
   options are 10×).
2. **Account size.** Total options-trading capital. Without this, you cannot
   enforce position sizing.
3. **Directional view.** Bullish / bearish / neutral — and **time horizon**
   (intraday / days / weeks / a cycle).
4. **Volatility view.** IV high (richly priced — sell), IV low (cheap — buy),
   neutral. Ideally with **IV rank** and **IV percentile** numbers.
5. **Event calendar.** Earnings, FOMC, dividends (ex-date), product launch,
   index rebalance — anything that can spike IV or jump the underlying inside
   your expiration window.
6. **DTE preference.** Short-dated (≤14 DTE — gamma-heavy, fast theta),
   monthly (~30–45 DTE — the credit-spread / iron-condor sweet spot),
   long-dated (LEAPS — vega-heavy, low theta).
7. **Existing legs?** Are we entering fresh, **adjusting** an existing
   position, or **managing** to an exit?

Do not proceed to a verdict until you know **what the underlying is, what the
view is, and what the structure is** (or which structures you're choosing
between).

---

## Step 2: Strategy Selection — Direction × Volatility

The decision framework is **directional view × volatility view**, then
**defined vs undefined risk**. Mark every candidate as defined or undefined,
and give a one-line *best when* / *worst when* before picking.

|           | **Long Vol** (buy premium — long Γ, long ν, short Θ)            | **Short Vol** (sell premium — short Γ, short ν, long Θ)                                              |
|-----------|------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|
| **Bullish**  | Long call · Bull-call **debit** spread                       | Cash-secured put · Bull-put **credit** spread · Covered call                                          |
| **Bearish**  | Long put · Bear-put **debit** spread                         | Bear-call **credit** spread                                                                          |
| **Neutral**  | Long straddle · Long strangle · Calendar / Diagonal (long-vol leg) | Short strangle · Iron condor · Iron butterfly · Calendar (short-vol view)                            |

- **Defined-risk** structures (all spreads, iron condor, iron butterfly): max
  loss is bounded and computable at entry. The **width − credit** (or the
  debit) is your worst case.
- **Undefined-risk** structures (naked short call, short strangle, short
  straddle): margin-intensive, real assignment risk, and **loss can exceed
  the credit collected** — for a short call the loss is *theoretically
  unlimited* on the upside.

Quick guide for the most-common picks:

- **Bull-put credit spread** — bullish, want short premium, high IV. *Best
  when* IV rank > 50 and you have a clear support level under the short put.
  *Worst when* IV is low (credits don't pay you for the downside).
- **Iron condor** — neutral, want short vega + short gamma. *Best when* IV
  rank > 50 and the underlying is rangebound with no event in window. *Worst
  when* IV is rising into a binary event you're holding through.
- **Long call** (or long put) — directional, want long gamma + long vega,
  cheap premium. *Best when* IV rank < 30 and a catalyst is coming. *Worst
  when* IV rank > 60 — you are overpaying for vol that will compress.
- **Covered call** — bullish-to-neutral on a long stock position you already
  hold; income against a cap. *Best when* IV rank > 40 and the strike is at
  your willing-to-sell price. *Worst when* the stock is set to run hard
  (you cap the upside) or to crash (the small premium doesn't hedge you).
- **Short strangle** — neutral, want short vega, **accepting undefined
  risk** and margin requirement. *Best when* IV rank > 60 in a liquid,
  rangebound underlying with no events. *Worst when* a gap blows past your
  short call or short put — losses can be many multiples of the credit.

---

## Step 3: Math — Compute the Trade

For the chosen structure, output a **Math table**: net debit / credit, max
profit, max loss, break-even(s), R:R (max profit ÷ max loss), and **width**
for spreads. If a number is missing, compute *symbolically* and ask for the
missing input. Always **show the formula, then plug in numbers**.

### Bull-put credit spread

Sell put at strike `K_short`, buy put at strike `K_long`, with
`K_long < K_short`. Per-share credit `C`. Width `W = K_short − K_long`.

```
Max profit  = C
Max loss    = W − C
Break-even  = K_short − C
R:R         = C / (W − C)
```

(P&L per contract = the per-share figure × 100 for standard US equity
options.)

### Bear-call credit spread

Sell call at `K_short`, buy call at `K_long`, with `K_long > K_short`. Per-share
credit `C`. Width `W = K_long − K_short`.

```
Max profit  = C
Max loss    = W − C
Break-even  = K_short + C
R:R         = C / (W − C)
```

### Iron condor (equal-wing)

Short put `K_sp`, long put `K_lp`, short call `K_sc`, long call `K_lc` —
with `K_lp < K_sp < K_sc < K_lc`. Net credit `C`. Wing width
`W = K_sp − K_lp = K_lc − K_sc` (assume equal wings).

```
Max profit      = C                 (when K_sp ≤ S ≤ K_sc at expiry)
Max loss        = W − C             (when S ≤ K_lp or S ≥ K_lc)
Break-evens     = K_sp − C  and  K_sc + C
R:R             = C / (W − C)
```

(Unequal wings — the "broken-wing" condor — change max loss to
`max(put_width, call_width) − C`. Flag this if the user constructs
asymmetric wings.)

### Long call

Buy call at strike `K` for per-share debit `D`.

```
Max profit  = unlimited (theoretical)
Max loss    = D
Break-even  = K + D
```

### Long put

Buy put at strike `K` for per-share debit `D`.

```
Max profit  = K − D                 (if S = 0 at expiry)
Max loss    = D
Break-even  = K − D
```

### Covered call

Long 100 shares of underlying at cost basis `S₀`, short one call at strike
`K` for per-share premium `P`.

```
Max profit  = (K − S₀) + P          (if S ≥ K at expiry — called away)
Max loss    ≈ S₀ − P                (large; the downside of holding the stock,
                                     buffered only by the small premium)
Break-even  = S₀ − P
```

The covered call is a **bullish-to-neutral, capped-upside** structure. The
"max loss" line is intentionally large — owning stock is the dominant risk;
the premium is a small income buffer, not a hedge.

### Short strangle (undefined risk)

Sell put at `K_sp`, sell call at `K_sc`, with `K_sp < K_sc`. Per-share net
credit `C` (sum of the two premia collected).

```
Max profit  = C                     (when K_sp ≤ S ≤ K_sc at expiry)
Max loss    = theoretically unbounded on the call side
              (and very large on the put side, down to S = 0)
Break-evens = K_sp − C  and  K_sc + C
Margin      = broker formula (~20% × underlying for short call side,
              minus OTM amount; check your broker)
```

A short strangle's *max profit* line is the entire compensation; the *max
loss* line is the reason it requires margin, position-size discipline, and a
plan for a managed exit before a tail event.

> **R:R note.** For credit spreads, R:R is mechanically poor (you are paid
> small to take a defined-but-larger risk). The right framing is not "is R:R
> > 1?" — it's whether the **probability of profit and your management plan
> together** make the expected value positive after fees.

---

## Step 4: Greeks at Entry

For each leg, list **Δ** (sign and magnitude). Then report the **net position
Greeks** with sign and rough magnitude per 1-contract structure.

| Greek | Means                                       | Sign you want depends on view                                            |
|------:|---------------------------------------------|---------------------------------------------------------------------------|
| **Δ** | ∂Price / ∂Underlying                        | Bullish → Δ > 0; bearish → Δ < 0; neutral target Δ ≈ 0                   |
| **Γ** | ∂Δ / ∂Underlying (convexity)                | Long-premium → Γ > 0; short-premium → Γ < 0                              |
| **Θ** | ∂Price / ∂time (per calendar day)           | Short-premium → Θ > 0 (decay works for you); long-premium → Θ < 0        |
| **ν** | ∂Price / ∂IV (per 1 vol-point)              | Short-vol → ν < 0 (IV drop helps); long-vol → ν > 0 (IV rise helps)      |

Conventions:

- Δ is also a *rough* proxy for **P(ITM at expiry)** under the option's
  implied distribution — useful for strike selection (e.g. a 16-delta short
  strike ≈ a 1σ move).
- **You cannot have positive Γ without negative Θ.** Long options buy
  convexity (Γ) and vol exposure (ν) and *pay* time (Θ). Short options
  *collect* Θ and pay both Γ and ν. A "free" Greek combination doesn't exist.
- Γ explodes near expiry, especially ATM — this is *gamma risk* for short
  premium, and the reason monthly cycles are typically managed by 21 DTE.

Report Θ as a **per-day** number ("≈ +$X / day at entry, all else equal") and
ν as a **per-1-vol-point** number ("≈ −$Y per +1 IV point"). If the user
hasn't given Greeks, state the **signs** and ask for magnitudes only if
needed.

---

## Step 5: IV Context

If IV rank or IV percentile is provided, apply the volatility heuristics — IV
is the most under-used input in retail options decisions.

- **IV rank** = (current IV − 52-week min IV) / (52-week max − min). 0..100.
- **IV percentile** = % of days in the lookback with IV **below** current.
  0..100.

Rules of thumb (from the research):

- **IV rank > 50** → favorable regime for **selling premium** (richer
  credits; vol tends to mean-revert lower). Credit spreads, iron condors,
  short strangles get paid more.
- **IV rank < 30** → favorable regime for **buying premium** (cheaper
  options; vol may expand). Long calls / puts / debit spreads have better
  entry cost.
- **20 < IVR < 50** → no edge from vol regime; the trade must stand on
  directional / structural merit alone.

Two refinements when relevant:

- **Vol skew / smile.** In equity index options, OTM put IV is typically
  higher than OTM call IV ("put skew"). This matters for strangles and
  iron condors — your put-side credit is naturally richer than the call-side
  credit at equal deltas, and your put-side risk is correspondingly larger.
- **Term structure.** Front-month vs back-month IV. **Contango** (back > front)
  is normal. **Backwardation** (front > back) usually signals an event in
  the front cycle (earnings, macro) and is a warning for calendars and
  diagonals — the short-vol leg can blow up at the event.

---

## Step 6: Probability of Profit & Expected Value

Estimate **probability of profit (PoP)** honestly, and state the caveat in
the same breath.

For a **short-premium** trade (one short option):

```
PoP ≈ 1 − |Δ_short|
```

(Delta-as-probability heuristic. A 25-delta short strike → ≈ 75% PoP.)

For a **defined-risk credit spread**:

```
PoP ≈ 1 − (Max loss / Width) = 1 − (W − C) / W = C / W
```

(The premium-implied probability that price stays past the short strike at
expiry. Both estimates should agree to within a few points; if they don't,
report both and note the divergence.)

For an **iron condor** (two-sided short premium), PoP is approximately:

```
PoP ≈ 1 − (|Δ_short_put| + |Δ_short_call|)
```

(Both wings need to stay OTM; the failure probabilities add.)

> **PoP ≠ EV — say this every time.** These estimates are the option chain's
> **premium-implied** probabilities. If implied volatility is *fair*, the
> expected value of a short-premium trade is **≈ 0 before fees and slippage**.
> A 90% PoP trade with a 9× downside is not edge — it is risk transfer, and
> if IV is honestly priced you are not being overpaid for it. Reported
> historical win rates (e.g. *"65–70% on credit spreads"*) describe a **win
> rate**, not an **edge**: a single tail loss can eat many winners.

What this means in practice:

- **Don't equate high PoP with a good trade.** Pair it with R:R and IV rank
  to judge whether you are being paid for the risk.
- **The skew tilt is real.** Equity index put-side strikes are
  premium-rich because the market structurally fears down-gaps; sellers can
  be compensated for *that* risk, but they own *that* risk.

---

## Step 7: Risk Management & Operational Checks

These rules separate operators from blow-ups. Run all of them every trade.

### Position sizing

- Compute **max loss as a percentage of account**.
  `position_size_% = max_loss_per_contract × contracts / account_size`.
- **Flag any single trade > 1–2% account max loss**. Most short-premium
  desks size at ≤ 1–2% per defined-risk trade, and well under 5% even for
  undefined-risk structures.
- **Kelly fraction:** if applied at all, use at most **½ Kelly** — full
  Kelly assumes your edge estimate is exactly right, and a wrong edge
  estimate produces dramatic drawdown.

### Trade management — short premium

- **Take profits at 25–50% of max profit.** A credit spread that has earned
  half its credit has already realized most of the easy theta with most of
  the gamma risk still to come. Closing early *raises* annualized return on
  capital.
- **Manage at 21 DTE for monthly cycles.** Inside 21 DTE, gamma risk
  outweighs the remaining theta. Roll the position to the next cycle, take
  it off, or take the untested side off and let the tested side run with a
  defined hard stop.
- **Defend the tested side, not the winning side.** Rolling the unbreached
  wing closer is often a fool's game — it adds risk to a side that wasn't
  in trouble.

### Trade management — long premium

- **Take partials on a directional move.** Long calls / puts can give back
  all of their gain in days as Θ accelerates near expiry. Scale out into
  strength.
- **Cut losers fast.** A long-premium trade that's wrong and bleeding theta
  is a worsening situation; do not turn it into a hope-trade.

### Assignment & dividend risk

- **ITM short calls** going into an **ex-dividend** date are an early-exercise
  risk — the holder of the long call can exercise the day before the
  ex-date to capture the dividend. If your short call has less extrinsic
  value than the dividend, expect to be assigned.
- **American-style options** (most US equity / ETF options) can be exercised
  any day. Index options (SPX, NDX, RUT) are **European** — exercise only
  at expiry — and **cash-settled**, removing assignment risk at the cost of
  PM-settlement (SPX AM vs PM) timing nuance.
- **Pin risk** — being short an option that finishes within pennies of the
  strike at expiry can leave you with an unexpected stock position Monday.

### Liquidity check

- **Bid-ask spread.** Reject a structure whose mid-to-spread is wide: as a
  rule of thumb, **bid-ask spread > 10% of the mid** is illiquid for retail.
  A `$0.20`-wide market on a `$1.00` credit gives up `~$20` of edge per
  contract at entry and another `$20` at exit — *that's your week's profit*.
- **Open interest.** A few hundred OI is functional for entry; a few
  contracts is not. Stale OI ≠ live liquidity — check today's bid-ask too.

### Margin

- For **undefined-risk** structures (naked short calls, short strangles),
  the broker's **margin requirement** (~20% of underlying notional minus
  OTM amount, plus the premium received — varies by broker) is your real
  capital commitment, not the credit. Size against margin, not against
  max-loss-of-credit.

---

## Step 8: Red-Flags Scan

Any one of these flips the trade toward 🟠 / ⛔.

- **Selling premium in low IV (IVR < 20).** Minimal credit, asymmetric
  loss — the trade is structurally underpaid.
- **Buying premium in high IV (IVR > 70).** You are overpaying for vol that
  is likely to compress on top of any directional move you need.
- **Naked short call without a directional thesis.** Unlimited upside risk
  for finite credit. *Never structural*; always tactical.
- **Earnings / FOMC / macro event crossing the expiration** without an
  explicit volatility plan. Implied vol rises into the event and crushes
  after — short-premium positions held *through* the event can earn the
  vol crush, but only if you've sized for the gap and decided in advance
  whether you'll hold or close.
- **DTE mismatch.** Too short for the expected move (gamma risk dominates
  theta), or too long for the catalyst (capital-inefficient; vol decay
  hurts the long-premium side).
- **Position size > 2% of account max loss.** Most blow-ups are sizing
  failures, not analysis failures.
- **Illiquid options.** Bid-ask > 10% of mid, or open interest near zero.
  You will pay 2× spread to round-trip.
- **High PoP, terrible R:R.** A 90% PoP / 0.11:1 R:R credit spread looks
  amazing on the win column and ugly on the math — the single loss eats
  9 wins. Don't conflate PoP with edge.
- **Defined-risk size that's larger than the account "wants" if assigned.**
  For cash-secured puts / covered calls / spreads that can pin to a stock
  position, ensure the assigned position is one you'd actually hold or
  short.

---

## Step 9: Output Format — the Trade Memo

Lead with a **verdict banner**, then the math, Greeks, IV context, PoP,
management plan, and red flags. Close with the disclaimer.

### Verdict banner (pick one)

- ✅ **Recommended** — structure fits the view, IV context aligned,
  defined risk within size limits, no red flags. *State the one reason it
  works.*
- 🟡 **Acceptable with caveats** — the trade is reasonable but one or two
  inputs are weak (IV regime borderline, R:R thin, marginal liquidity).
  *State the caveats — fix or accept.*
- 🟠 **Reconsider** — a meaningful issue is present (structure mismatched to
  IV regime, oversized, event in window without a plan). *State the issue
  and the better alternative.*
- ⛔ **Avoid** — a hard red flag is present (naked short call without
  thesis, IVR < 20 short premium with rich downside, > 5% account max loss,
  illiquid). *State the reason in one line.*

### Strategy summary

- **Structure:** name + legs (strike + side + expiration for each).
- **Net debit / credit:** signed per-share + per-contract.
- **DTE.**
- **Defined or undefined risk.**

### Math table

| Metric | Formula | Value |
|---|---|---|
| Width (if spread) | `K_short − K_long` (or wing width) | … |
| Max profit | … | … |
| Max loss | … | … |
| Break-even(s) | … | … |
| R:R | `max_profit / max_loss` | … |

### Greeks table

| Greek | Position | What it costs / pays |
|---|---|---|
| Δ | + / − / ≈ 0 | directional exposure per $1 underlying move |
| Γ | + / − | convexity sign |
| Θ | + / − | ≈ $X per calendar day at entry |
| ν | + / − | ≈ $Y per +1 IV point |

### IV context

- IV rank / percentile (if given) + regime call (sell / neutral / buy).
- Skew note if relevant.
- Term-structure note if calendar / diagonal.

### Probability of profit

- PoP estimate + the formula used.
- **"PoP is the premium-implied probability, not edge. If IV is fair, EV ≈ 0
  before fees."**

### Risk-management plan

- **Position size:** `max_loss × contracts / account_size = …%`. PASS /
  REDUCE TO N CONTRACTS.
- **Profit target:** close at 25–50% of max profit (short premium) or
  scale out (long premium).
- **Time-stop:** manage at 21 DTE for monthlies; or define hard time-stop.
- **Assignment risk:** flag ITM short calls into ex-div, American-style
  early-exercise risk.
- **Liquidity:** bid-ask vs mid, OI sanity.
- **Margin requirement** for undefined-risk structures.

### Red flags found

Bulleted; *if none*, say so.

### Disclaimer (always include)

> **Educational analysis — not investment advice, not a recommendation to
> trade, and not a guarantee of outcome.** Options can lose **100% of
> premium** paid, and undefined-risk positions can lose **more than the
> cash deposited**. Past win rates do not predict future results, and the
> probability estimates above are the option chain's premium-implied
> probabilities, not measures of edge. This analysis reasons only over the
> information you provided; it cannot see live quotes, the live chain, or
> live IV. Verify all numbers in your broker before entering. Consult a
> qualified, licensed financial professional for personal investment
> decisions.

---

## Related Viprasol Skills

- **`trading-strategy-review`** — pitfalls of backtests behind any
  options-strategy claim (look-ahead bias, overfit, survivorship, slippage,
  risk-of-ruin).
- **`risk-management-review`** *(sister skill, coming next)* — portfolio-level
  sizing, Kelly fraction, drawdown control, and correlation across
  positions.

*Not affiliated with or endorsed by Anthropic.*