How to Write Entry, Exit and Sizing Rules for Each Options Strategy

Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026

Options trading rules are if-then statements, written before you trade, that say when you enter, when you exit and how many contracts you trade. Each strategy needs its own set, because a covered call, a cash-secured put and a credit spread make and lose money in different ways and go wrong in different ways.

The previous lesson, Choosing Your Strategies, narrowed the plan; this lesson writes the rules. Beyond the profit, loss and time exits of a bought option, short options and spreads need rules for assignment and size.

What makes a trading rule one you can follow?

A rule is usable when someone else could check, from your journal alone, whether you followed it. "Take profits when the trade looks good" fails that test. "Buy the spread back at $0.30" passes.

Three habits get you there:

• Use prices, dates and numbers, not feelings. "Close with 21 days left" can be checked.
• Write the rule for the strategy, not the trade, so your journal compares like with like.
• Write the exit before the entry, before money is moving.

What goes in a strategy's rule set?

Every Course 2 strategy gets the same five headings. What goes under each one changes.

The assignment row is the one long-option traders have never needed. An American-style short option can be assigned at any time before it expires. The Options Industry Council notes that assignment risk rises as the option goes deeper in the money and as expiration approaches, and rises just before the ex-dividend date for short calls. So a covered call rule set says in advance whether to accept assignment or close if the call is in the money before an ex-dividend date. Many plans also avoid short options through earnings, because the stock can gap past both exits.

The two hedges, protective puts and collars, get the same headings. The put strike sets their loss at entry, so their rules are about the shares and renewing the hedge.

On this module's hypothetical quotes (XYZ at $48, 45 days), buying the 45 put for $0.80 against 100 shares caps the loss at ($48 - $45 + $0.80) x 100 = $380. Selling the 52 call for $0.80 as well makes a no-cost collar: at most $300 lost and $400 gained.

How do you set exit rules for a spread?

A spread has a price, like any option, so its exits are prices you can watch. For a credit spread, traders often express them as a share of the credit received.

How do you size each strategy?

Sizing answers "how many?", and the answer depends on whether the strategy's worst case is defined.

Defined-risk strategies (spreads, protective puts) are sized from their maximum loss: contracts = your risk budget per trade divided by the maximum loss per contract, rounded down. With a $25,000 account and a 2% budget, that is $500 per trade:

• Bull put spread, $440 max loss: $500 / $440 = 1.1, so 1 spread.
• Bull call spread (48/52, $1.20 debit), $120 max loss: 4 spreads, $480 at risk.
• Bear put spread (buy the 48 put at $1.90, sell the 45 put at $0.80, a $1.10 debit), $110 max loss: 4 spreads, $440 at risk.
• Protective put ($380) or collar ($300): 1, and the $4,800 of shares must also fit the capital cap below.

The size uses the $440 worst case, not the $120 loss exit, because a gap can carry the price straight past the exit.

Stock-backed strategies (covered calls, cash-secured puts) cannot be sized this way. The XYZ 45 put has a worst case of $4,420, so a $500 budget would allow zero contracts. Instead, size them with a capital cap: the strike times 100 must fit inside the share of the account you will put into one stock. At 20% of $25,000, the cap is $5,000, and the 45 put's $4,500 fits once.

How positions add up is covered in the Position Sizing and Portfolio Basics module, and adjusting or rolling in Trade Management.