SWING OPTIONS TRADING BLUEPRINT

Pre-Trade Validation & Signal Confirmation System

Purpose: This document serves as a machine-readable context file for validating trade actions (BTO/STC) against a comprehensive checklist. Every proposed trade must pass ALL applicable gates before execution.

Target Contract Price: ≤ $3.00 preferred | ≤ $5.00 maximum Holding Period: 2–15 trading days Risk Per Trade: ≤ 2% of total account value

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TABLE OF CONTENTS

1. •Pre-Screening Filters
2. •Historical Data & Lookback Requirements
3. •Technical Analysis Gate
4. •Options-Specific Filters
5. •VIX & Volatility Models
6. •Macro Environment Gate
7. •Sector & Industry Rotation Check
8. •News & Catalyst Validation
9. •Options Flow & Institutional Activity
10. •BTO Entry Rules
11. •STC Exit Rules
12. •Risk Management Framework
13. •Data Sources & Tools Reference
14. •Trade Validation Checklist (Machine-Readable)

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1. PRE-SCREENING FILTERS

Every underlying ticker must pass these minimum filters before any further analysis.

1.1 Underlying Stock Criteria

1.2 Options-Specific Liquidity Filters

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2. HISTORICAL DATA & LOOKBACK REQUIREMENTS

2.1 Required Lookback Periods

2.2 Historical Pattern Checks

Before entering any trade, validate the following historical behaviors:

• •Average True Range (ATR) 14-day: Must be ≥ 2% of stock price. This confirms enough daily movement to generate option premium gains within the swing window.
• •Historical Volatility (HV) 20-day vs 60-day: If HV20 > HV60, momentum is expanding (favorable for directional plays). If HV20 < HV60, momentum is contracting (watch for breakout or avoid).
• •Average Swing Length: Measure the average number of days between swing highs and swing lows over the past 90 days. If average swing = 5–12 days, it matches our holding period.
• •Win Rate of Pattern: If using a specific setup (e.g., bull flag, double bottom), check the stock's historical success rate for that pattern over the past year. Minimum acceptable: 55% historical follow-through.
• •Seasonality Check: Review the stock's average return for the current calendar month over the past 5 and 10 years. Strong seasonal tailwinds are a bonus, not a requirement.

2.3 Data Sources for Historical Analysis

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3. TECHNICAL ANALYSIS GATE

A trade must satisfy a minimum of 4 out of 6 technical confirmations for a BTO signal.

3.1 Trend Confirmation (Required — Cannot Skip)

3.2 Momentum Confirmation (Need 2 of 3)

3.3 Volume Confirmation (Need 1 of 2)

3.4 Support & Resistance Levels

3.5 Chart Pattern Recognition (Bonus Confirmation)

Recognized patterns that add conviction (not required, but strengthen the signal):

Bullish Patterns: Bull flag, ascending triangle, double bottom, cup and handle, bullish engulfing candle, hammer at support, inverse head and shoulders.

Bearish Patterns: Bear flag, descending triangle, double top, head and shoulders, bearish engulfing candle, shooting star at resistance.

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4. OPTIONS-SPECIFIC FILTERS

4.1 Contract Selection Rules

4.2 Greeks Snapshot Requirements

Before BTO, capture and validate:

• •Delta: 0.30–0.50 (sweet spot for swing plays)
• •Gamma: Note it — higher gamma means faster delta changes near expiration
• •Theta: Must not exceed 3% of contract value per day
• •Vega: Note it — if IV is elevated, high vega means you're paying a premium
• •Implied Volatility (IV): Compare to the stock's IV Rank and IV Percentile

4.3 IV Rank & IV Percentile Check

4.4 Max Pain & Gamma Exposure (GEX)

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5. VIX & VOLATILITY MODELS

5.1 VIX Level Assessment

5.2 VIX Term Structure (Contango vs. Backwardation)

How to Check: Compare VIX spot vs. VIX 3-month (VIX3M, formerly VXV). Ratio < 1.0 = contango. Ratio > 1.0 = backwardation.

Source: CBOE VIX Futures Term Structure — cboe.com/us/futures/market_statistics/term_structure/

5.3 VIX Signal Models

5.4 Sector-Specific Volatility

CBOE publishes volatility indices beyond the VIX:

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6. MACRO ENVIRONMENT GATE

6.1 Federal Reserve & Interest Rate Check

6.2 Key Economic Indicators Calendar

Rule: Do not enter BTO within 24 hours before any HIGH-impact data release unless you are deliberately trading the catalyst.

Economic Calendar Sources:

6.3 Macro Trend Scoring

Before any trade, score the macro environment:

Scoring:

• •Total ≥ +4: Strongly bullish macro → favor call trades, larger positions
• •Total +1 to +3: Mildly bullish → normal call positions
• •Total -1 to +1: Neutral/mixed → reduce position sizes, tighter stops
• •Total ≤ -2: Bearish macro → favor put trades or stay cash
• •Total ≤ -5: Strongly bearish → cash or short-only via defined-risk puts

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7. SECTOR & INDUSTRY ROTATION CHECK

7.1 The 11 S&P Sector SPDR ETFs

7.2 Sector Validation Rules

7.3 Sector Rotation Data Sources

7.4 Sub-Industry Check

Don't just check the broad sector. Drill down to the sub-industry:

Example: If trading NVDA options, don't just check XLK (Technology). Also check SMH (Semiconductors ETF) and compare NVDA's relative strength vs SMH.

Rule: The stock should be outperforming or matching its sub-industry ETF. If the sub-industry is weak but the broad sector is strong, the stock may not participate in the sector rally.

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8. NEWS & CATALYST VALIDATION

8.1 News Sources for Signal Validation

8.2 Catalyst Checklist

Before entering a BTO, check for upcoming catalysts:

8.3 Earnings-Specific Rules

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9. OPTIONS FLOW & INSTITUTIONAL ACTIVITY

9.1 Unusual Options Activity (UOA)

9.2 Dark Pool Activity

9.3 Options Flow & Dark Pool Data Sources

9.4 How to Cross-Reference Flow with Your Trade

Bullish BTO (Calls) Confirmation:

1. •Check Unusual Whales / FlowAlgo for bullish sweeps or blocks on the ticker
2. •Verify the sweep is in the same expiration window as your planned trade (± 1 week)
3. •Confirm dark pool prints are at or below current price (buying support)
4. •Check that the Put/Call ratio for the ticker is < 0.7

Bearish BTO (Puts) Confirmation:

1. •Check for bearish sweeps or large put blocks
2. •Verify expiration alignment
3. •Confirm dark pool prints are above current price (selling resistance)
4. •Check that the Put/Call ratio > 1.0

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10. BTO ENTRY RULES

10.1 Entry Trigger Checklist

A valid BTO requires ALL of these conditions to be true:

ENTRY = (
    Pre-Screen PASS
    AND Technical Gate PASS (4/6 min)
    AND Options Filter PASS
    AND VIX Gate PASS
    AND Macro Score ≥ -1 (for calls) or ≤ +1 (for puts)
    AND Sector RS PASS
    AND No Blocking Catalyst within 5 days
    AND (Flow Confirmation = BONUS, not required but strengthens)
)

10.2 Specific BTO Triggers

10.3 Position Sizing

Position Size = (Account Value × Max Risk %) / (Entry Price - Stop Loss Price)

Example:
- Account: $10,000
- Max Risk: 2% = $200
- Contract Price: $2.00
- Stop Loss: $1.00 (50% loss on the contract)
- Max Contracts: $200 / ($2.00 - $1.00) × 100 = 2 contracts

Alternative Simple Rule:
- Never allocate more than 5% of account to a single option position
- $10,000 account × 5% = $500 max per position
- At $2.00/contract = max 2-3 contracts

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11. STC EXIT RULES

11.1 Profit Targets

11.2 Stop-Loss Rules

11.3 STC Trigger Signals

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12. RISK MANAGEMENT FRAMEWORK

12.1 Portfolio-Level Rules

12.2 Position Management Rules

12.3 Trade Journal Requirements

Log every trade with:

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13. DATA SOURCES & TOOLS REFERENCE

13.1 Master Tools List

13.2 Free API Data Sources (For Automation)

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14. TRADE VALIDATION CHECKLIST

Machine-Readable Gate Structure

Use this as the final pass/fail check for any trade action.

TRADE_VALIDATION = {

  "PRE_SCREEN": {
    "market_cap_gte_2B": PASS/FAIL,
    "avg_daily_volume_gte_1M": PASS/FAIL,
    "stock_price_10_to_150": PASS/FAIL,
    "option_volume_gte_500": PASS/FAIL,
    "open_interest_gte_1000": PASS/FAIL,
    "bid_ask_spread_lte_5pct": PASS/FAIL,
    "contract_price_lte_5": PASS/FAIL,
    "no_earnings_within_5_days": PASS/FAIL,
    "GATE_RESULT": "ALL must PASS"
  },

  "HISTORICAL_DATA": {
    "atr_14_gte_2pct": PASS/FAIL,
    "avg_swing_length_5_to_12_days": PASS/FAIL,
    "one_year_daily_data_available": PASS/FAIL,
    "GATE_RESULT": "ALL must PASS"
  },

  "TECHNICAL_ANALYSIS": {
    "trend_confirmation": PASS/FAIL,         // REQUIRED
    "momentum_2_of_3": PASS/FAIL,
    "volume_confirmation": PASS/FAIL,
    "support_resistance_valid": PASS/FAIL,
    "risk_reward_gte_2_to_1": PASS/FAIL,
    "chart_pattern_bonus": PASS/FAIL,
    "GATE_RESULT": "Trend REQUIRED + 3 of 5 others"
  },

  "OPTIONS_FILTER": {
    "dte_21_to_45": PASS/FAIL,
    "delta_030_to_050": PASS/FAIL,
    "theta_lte_3pct_daily": PASS/FAIL,
    "iv_rank_lt_70": PASS/FAIL,
    "iv_percentile_lt_50_preferred": PASS/FAIL,
    "GATE_RESULT": "DTE + Delta + Theta must PASS; IV checks preferred"
  },

  "VIX_GATE": {
    "vix_level_assessed": PASS/FAIL,
    "vix_term_structure_checked": PASS/FAIL,
    "vix_not_in_crisis_gt_35_for_calls": PASS/FAIL,
    "GATE_RESULT": "ALL must PASS"
  },

  "MACRO_ENVIRONMENT": {
    "macro_score_calculated": PASS/FAIL,
    "macro_score_gte_neg1_for_calls": PASS/FAIL,
    "macro_score_lte_pos1_for_puts": PASS/FAIL,
    "no_high_impact_data_within_24hrs": PASS/FAIL,
    "no_fomc_within_48hrs": PASS/FAIL,
    "GATE_RESULT": "Score threshold + timing must PASS"
  },

  "SECTOR_CHECK": {
    "sector_rs_vs_spy_rising": PASS/FAIL,
    "sector_etf_above_50sma": PASS/FAIL,
    "sector_not_overbought": PASS/FAIL,
    "business_cycle_alignment": PASS/FAIL,
    "GATE_RESULT": "RS + SMA must PASS; others preferred"
  },

  "NEWS_CATALYST": {
    "no_blocking_catalyst": PASS/FAIL,
    "no_negative_headline_risk": PASS/FAIL,
    "insider_activity_check": PASS/FAIL,
    "GATE_RESULT": "No blocking catalyst must PASS"
  },

  "FLOW_CONFIRMATION": {
    "unusual_options_activity_aligned": PASS/FAIL,
    "dark_pool_prints_aligned": PASS/FAIL,
    "put_call_ratio_aligned": PASS/FAIL,
    "GATE_RESULT": "BONUS — not required but strengthens conviction"
  },

  "RISK_MANAGEMENT": {
    "position_size_lte_5pct_account": PASS/FAIL,
    "total_open_positions_lte_5": PASS/FAIL,
    "sector_concentration_lte_2": PASS/FAIL,
    "total_portfolio_risk_lte_10pct": PASS/FAIL,
    "stop_loss_defined": PASS/FAIL,
    "profit_targets_defined": PASS/FAIL,
    "GATE_RESULT": "ALL must PASS"
  },

  "FINAL_VERDICT": {
    "all_required_gates_pass": PASS/FAIL,
    "conviction_level": "LOW / MEDIUM / HIGH",
    "action": "BTO / STC / NO TRADE"
  }

}

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APPENDIX: QUICK-REFERENCE DECISION TREE

START
  │
  ├── Does the ticker pass PRE-SCREEN filters?
  │     NO → REJECT TRADE
  │     YES ↓
  │
  ├── Does the ticker pass HISTORICAL DATA checks?
  │     NO → REJECT TRADE
  │     YES ↓
  │
  ├── Does the TECHNICAL ANALYSIS gate pass (trend + 3/5)?
  │     NO → REJECT TRADE
  │     YES ↓
  │
  ├── Does the OPTIONS FILTER pass (DTE, Delta, Theta, IV)?
  │     NO → ADJUST STRIKE/EXPIRY or REJECT
  │     YES ↓
  │
  ├── Is the VIX environment acceptable?
  │     VIX > 35 and buying calls? → REJECT or use SPREADS
  │     VIX < 35 → PASS ↓
  │
  ├── Does the MACRO SCORE support the direction?
  │     Score ≤ -2 and buying calls? → REJECT
  │     Score ≥ +2 and buying puts? → REJECT
  │     Otherwise → PASS ↓
  │
  ├── Is the SECTOR showing relative strength (calls) or weakness (puts)?
  │     NO → REJECT TRADE
  │     YES ↓
  │
  ├── Any BLOCKING CATALYST within 5 days?
  │     YES → REJECT or WAIT
  │     NO ↓
  │
  ├── RISK MANAGEMENT checks pass?
  │     NO → REDUCE SIZE or REJECT
  │     YES ↓
  │
  ├── [BONUS] Is OPTIONS FLOW aligned?
  │     YES → HIGH conviction
  │     NO → MEDIUM conviction (still valid)
  │     ↓
  │
  └── ✅ EXECUTE BTO
        Set stop-loss, profit targets, time stop.
        Log in trade journal.

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Disclaimer: This blueprint is for educational purposes only and does not constitute financial advice. Options trading involves substantial risk. You can lose more than your initial investment. Past performance does not guarantee future results. Always do your own research and consider consulting a licensed financial advisor before trading.

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Last Updated: February 2026 Version: 1.0