Gap with Options Flow Confirmation

Entry Logic

• Exact Entry Trigger: A stock gaps up with significant bullish options flow (e.g., a high volume of call buying). Enter long on a pullback.
• Confirmation Requirements: The options flow should be unusual and heavily skewed to one direction. The pullback should be on low volume.
• Timeframe Required: 5-minute chart.
• Location Context: The entry occurs at a dynamic support level.
• Market Condition Requirement: A market that is not strongly bearish.

Exit Logic

• Profit Target(s): Target 1R and 2R.
• Scaling Out Rules: Scale out at each target.
• Trailing Stop Rules: Use the 20-period EMA on the 5-minute chart.
• Exit on Signal Failure: Exit if the options flow reverses.
• Exit on Opposite Signal: Not applicable.
• Exit on Time Expiration: Exit by the end of the day.
• Exit on Momentum Loss: Exit if the upward momentum stalls.

Stop Loss Structure

• Hard Stop Location: Below the low of the entry candle.
• Soft Stop Rules: None.
• Maximum Dollar Loss: 1% of account.
• Maximum Percent Loss: 3% of stock price.
• Structural Stop Placement: Below the low of the entry candle.

Risk Management Framework

• Risk Per Trade: 1% of capital.
• Maximum Daily Loss Limit: 3%.
• Maximum Weekly Loss Limit: 6%.
• Maximum Drawdown Allowed: 15%.
• Risk-Reward Ratio Requirement: Minimum 2:1.

Position Sizing Model

• Recommended Sizing Approach: Based on 1% risk rule.
• Volatility-Based Adjustment: Reduce size in volatile stocks.
• Conviction-Based Sizing: Full size for A+ setups.
• Scaling In Rules: Do not scale in.
• Scaling Out Rules: As defined in Exit Logic.

Trade Filtering

• Market Conditions to Avoid: Strong bear markets.
• Specific Setups Required: A gap with options flow confirmation.
• Stock/Instrument Requirements: Liquid stocks with active options markets.
• Time of Day Restrictions: Any time of day.
• Chop/News Avoidance Rules: Avoid news-driven gaps.

Context Framework

• Trend Direction Assessment: Best in range-bound or bullish markets.
• VWAP Relationship: The entry should be above VWAP.
• Moving Average Relationship: The stock is often trading above its key moving averages.
• Range Location: At the top of the daily range.
• Higher Timeframe Alignment: The daily chart should be in an uptrend.

Trade Management Rules

• When to Move Stop to Breakeven: After the first target is hit.
• When to Scale Out: At profit targets.
• When to Add Size: Never.
• How to Handle Fast Moves vs Slow Moves: Let the trade play out.

Time Rules

• Optimal Trading Window: Any time of day.
• Times to Avoid: The opening 15 minutes.
• Session-Specific Notes: Works well in any session.

Setup Classification

• A+ Setup Criteria: A clear setup with high volume and strong options flow.
• A Setup Criteria: A clear setup with average volume and options flow.
• B Setup Criteria: A weak setup.
• C Setup Criteria: No clear setup.

Market Selection Criteria

• Instrument Requirements: Liquid stocks with active options markets.
• Volume/Liquidity Requirements: >1M daily volume.
• Volatility Requirements: Moderate.

Statistical Edge Metrics

• Expected Win Rate: 60-65%.
• Average Win Size: 2.5R.
• Average Loss Size: 1R.
• Profit Factor: 1.8 to 2.2.
• Expectancy Per Trade: +0.8R to +1.0R.

Failure Conditions

• Market Conditions Where Strategy Fails: Strong bear markets.
• Specific Scenarios to Avoid: Options flow that is not sustained.

Psychological Rules

• Key Mental Discipline Requirements: Requires discipline to trust the options flow.

Advanced Components

• Market Regime Detection: Use market internals to confirm strength.
• Volatility/Liquidity Filters: Avoid illiquid stocks.
• Correlation Filters: Not applicable.
• Multi-Timeframe Alignment: Look for confirmation on the 15-minute chart.

Location

• Where This Setup Is Strongest: When the options flow is clear.
• Where This Setup Is Weakest: When the options flow is weak.
• Location Changes Outcome: The clarity of the options flow is critical.