OPTIONS AS A SLEEVEADVANCED · LESSON 26 / 36~7 min read

The 13-point options audit (O1-O13).

The equity 13 pillars (Lesson 12) ask: does this ticker earn a trade? The options 13 pillars ask: does this specific contract earn it? Same gate-stacking logic, different domain. An option on a Grade A equity name can still fail the options-specific audit — wrong strike, wrong expiry, IV too high, liquidity too thin, OPEX too close. The framework runs both audits independently when an options trade is being considered. Equity gates approving doesn't license options entry; both must pass. That's the central architectural decision: parallel audits, simultaneous enforcement.

The 13 options pillars in five categories

Same five-category structure as the equity pillars, mirroring the architecture so the cognitive load is identical:

Contract-level (4 pillars) — does this specific option contract make sense?

O1 — Strike selection. ATM or slightly OTM for directional plays. Deep OTM lottery tickets refused. ITM with delta ≥ 0.7 only for capital-efficient LEAPS replacements.
O2 — Expiry selection. 1-2 weeks past the event for binary catalysts. 60-180 days for medium-term directional. 6-12 months for LEAPS replacements. Sub-7-day expiries refused except as event-day plays.
O3 — Implied volatility (IV). IV percentile over 60 days. Above 80th percentile = elevated, refused unless the catalyst justifies the premium. Below 20th = compressed, favorable.
O4 — Liquidity. Bid-ask spread under 5% of premium AND open interest above 100 contracts AND average daily volume above 50 contracts. Thin contracts refused — slippage eats the edge.

Greeks-level (3 pillars) — what's the contract's behavior under price movement?

O5 — Delta. Directional plays: delta 0.30-0.70 (true exposure to underlying move). Capital-efficient LEAPS: delta ≥ 0.70.
O6 — Theta-to-premium ratio. Daily theta as % of premium. Above 2%/day refused for swing-timeframe plays — too much decay.
O7 — Gamma exposure. Particularly for short-dated plays. High gamma = high responsiveness, also high risk near expiry. The framework caps single-position gamma exposure.

Sleeve-level (2 pillars) — how does this fit the portfolio?

O8 — Options sleeve concentration. Total options premium not above 5-10% of portfolio. Single-trade caps at 1.5-2%.
O9 — Underlying overlap with equity sleeve. Long calls on a name already held in equity = sleeve composition risk. Capped to prevent doubling exposure.

Calendar-level (3 pillars) — when relative to events?

O10 — OPEX proximity. Held positions through OPEX week have dealer-flow distortion. New entries during OPEX week filtered for thin-volume strikes.
O11 — Earnings/catalyst alignment. Expiry chosen to span the catalyst with 1-2 week buffer past it.
O12 — Macro alignment. No new vol-sensitive options the day before FOMC unless the trade IS the FOMC view. Same 90-min refusal window as equity (Lesson 23).

Trader-level (1 pillar)

O13 — Adherence + understanding. The trader can articulate, in writing, the binary outcome window, the max loss (premium), and the exit plan (held to event, rolled, closed at +X%). If they can't, the trade isn't legitimate.

⌬ Options pillar checker

Pillars passed13/13

VerdictOPTIONS APPROVED

All 13 options pillars pass. The contract earns the trade. Note: the equity audit on the underlying is a SEPARATE gate that must also pass. Options Coach surfaces the trade only when both audits clear.

Uncheck any pillar — the verdict reacts. The equity 13 pillars and the options 13 pillars compose: both must pass for an options entry. That's why the audit is separate, not a substitute.

Why parallel audits, not one audit

The equity audit asks "does this name earn a position?" The options audit asks "does this specific contract earn capital allocation?" These are independent questions with different failure modes:

NVDA might be Grade A on equity (clean structure, R:R 3:1, all gates green) but the available 30-day OTM call has thin liquidity, IV at 90th percentile, theta-to-premium 4%/day. Equity passes; options refuses.
An index hedge (SPY puts) is structurally a hedge — it doesn't have an equity-side thesis. The equity audit doesn't apply; only the options audit decides.
A LEAPS replacement on a held NVDA position has equity already passing (the position is held); the options audit governs whether the LEAPS specifically is a good capital-efficient swap.

Parallel audits keep the failure modes separable. The trader sees clearly which audit refused and why; the override (if used) is logged against the specific gate, not a composite "options + equity" verdict that obscures the reasoning.

The most common O-pillar refusals

From the framework's journal data, the three most-common refusal points on options trades:

O3 (IV percentile). Retail traders chase setups during elevated IV — earnings runs, FOMC anticipation. The premium is priced for the volatility. Refused.
O4 (liquidity). Mid-cap and small-cap option chains are often too thin to trade size. Refused.
O6 (theta-to-premium). Short-dated OTM options have theta that eats premium daily. The "cheap" lottery ticket loses 10% of premium per day in time decay even before any directional move.

These three account for ~60% of options-pillar refusals in the framework's logs. None of them are about whether the trade idea is good — they're about whether the contract is the right vehicle for the idea.

The real lesson

The equity 13 pillars and the options 13 pillars are independent gates that compose. Equity Grade A doesn't license the options trade; the contract has to clear its own audit. The O1-O13 set is the framework's mechanism for keeping the cargo-cult options trades (cheap OTM lottery tickets, illiquid strikes, IV-elevated catalyst-chasers) from polluting the options sleeve. Run both audits; trade only what both approve; log the refusals so the journal grades override discipline over time.