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Dan Passarelli—veteran options trader, author, and founder of Market Taker Mentoring—sits down for a practical talk on the mechanics that actually make money after the order is placed. From his Chicago floor days to coaching retail traders, Dan keeps coming back to one big point: “management makes money.” In this interview, he explains why two people can be on the same trade and end up with different outcomes—because the edge lives in what you do next, not just the setup.
In this piece, you’ll learn Dan Passarelli’s go-to options playbook—earnings trades built from a tight checklist, credit spreads and time spreads, a short-squeeze system, and the covered-call/cash-secured-put “wheel” he runs daily with quick, low-maintenance adjustments. He also walks through repair tactics (like the stock-repair combo) and shows how to stack odds by using time decay and implied volatility—so you can sometimes even be wrong on direction and still get paid. If you’re newer to options, you’ll leave with a simple lens: define the plan, use the checklist, and let position management—not prediction—drive your results.
Dan Passarelli Playbook & Strategy: How He Actually Trades
Core Philosophy: Management Makes Money
Before any fancy setup, the edge comes from what happens after the fill. Dan treats entries as hypotheses and management as the driver of P&L. This section lays out how to think like a risk manager first and a predictor second.
- Define win and loss conditions before entry; no “we’ll see.”
- Every trade must have an adjustment path (what you’ll roll, when, and to where).
- Favor trades where time and volatility can pay you even if direction is meh.
- If the plan breaks, flatten first, diagnose later—never add size to “get even.”
The Pre-Trade Checklist (Use Every Time)
A tight checklist removes impulse and forces repeatable execution. Run this before clicking buy/sell so you stop trading vibes and start trading rules.
- Thesis: directional, neutral, or “volatility harvest”—pick one.
- Liquidity: bid/ask spread ≤ $0.10 for liquid weeklies, ≤ $0.20 for monthlies.
- Position size: max 1–2% of account at risk if stopped; margin-based trades capped at 20–30% of net liq total exposure.
- IV context: rank/percentile ≥ 40 for premium selling; ≤ 25 favors calendars/debits.
- Event scan: earnings, fed, major data—decide to use or avoid, never “oops.”
- Exit/adjust levels written down (price, delta, or P&L triggers).
Earnings Trades That Stack Odds
Earnings can be consistent if you treat them like a rules engine, not a lottery. Dan focuses on structures that monetize implied volatility and defined risk.
- Prefer defined-risk spreads over naked premiums in announcements.
- If IVR ≥ 50 and market makers imply a move bigger than recent realized moves, sell premium (iron condor or short strangle converted to iron flies).
- Aim to keep short strikes just outside the market maker move (MMM) and collect 25–45% of the width.
- Enter 1–2 days pre-earnings; exit by the opening print after the report (capture crush, skip gamma).
- No hold through day two—edge decays after the implied crush is gone.
Vertical Credit Spreads (Bread-and-Butter Income)
Verticals let you define risk, align with a mild directional view, and get paid by time. Keep deltas sensible and manage early.
- Sell 20–30 delta credit spreads, 30–45 DTE; collect at least 1/3 of the width.
- Set profit-take at 50% of max credit or 21 DTE—whichever hits first.
- If short strike breaches, roll out one month and up/down one strike for similar credit (keep risk defined).
- Never widen the spread to “fix” P&L; move it in time, not in width.
- Avoid overlapping spreads in the same direction on the same ticker.
Calendars & Diagonals (When IV Is Low)
When options are cheap, Dan leans on time spreads to create a theta engine with limited vega risk. The goal is to buy time where it’s underpriced.
- Deploy when IVR ≤ 25 and a catalyst sits in the back month.
- Buy the longer-dated option, sell the near-term against it; target net debit ≤ 2% of account per structure.
- Place strikes near 25–35 delta with price magnet (support/resistance).
- Manage at 25–40% return on debit or if front-month short goes worthless (sell another).
- Exit if back-month IV falls 20% from entry or underlying trends hard through strike.
Short-Squeeze System (Tactical Momentum)
Squeezes pay fast but punish hesitation. This is a structured entry/exit to surf volatility without overstaying.
- Screen for high short interest + fresh breakout above a clear daily level on rising volume.
- Use call debit spreads (defined risk) expiring 14–21 DTE; target 25–35 delta long call.
- Enter only on intraday retest of breakout with volume ≥ 1.5× average per minute/hour.
- Partial take at 1R, trail stop under prior day’s low; all out on a full gap-fill back below breakout.
- No averaging on momentum failures; the first fail is the final say.
The Wheel (Covered Calls & Cash-Secured Puts)
The goal is to accumulate shares you actually want while harvesting premium. Dan keeps maintenance low and the rules strict.
- Sell cash-secured puts 30–45 DTE at 20–25 delta on tickers you’d hold.
- If assigned, immediately sell 30–45 DTE covered calls at 20–25 delta.
- Roll calls if price tags the strike with ≥ 60% of credit left; roll out and up for a net credit.
- Total position per ticker ≤ 10% of account; across tickers ≤ 40%.
- Track annualized yield: target 12–24% from premiums alone, shares are a bonus.
Position Sizing & Portfolio Heat
Sizing is strategy. Dan avoids the slow bleed of “lots of small good ideas” turning into one correlated mess.
- Single-trade “max loss if stop/adjust hits” ≤ 1–2% of account.
- Total net short premium margin ≤ 30% of net liq; keep 50% buying power free.
- Correlation cap: no more than 2 positions with the same macro driver (e.g., all semis).
- Event heat cap: ahead of CPI/FOMC, cut gross delta to ±0.25 per $10k account value.
Getting In: Timing & Confirmation
Entries don’t need perfection; they need consistency. Dan uses simple, testable triggers.
- Directional: higher high + hold above 5-day median range for longs; mirror for shorts.
- Neutral/premium: sell after a range expansion day when IV pops (mean-reversion window).
- Never chase after a 2× ATR day; wait for an inside day or 38–50% retrace.
Management & Adjustments (The Edge)
Adjustments are scheduled, not emotional. Decide the ladder before entry.
- Profit-take at 50% of max credit (credit spreads) or 25–40% ROI (debits/calendars).
- If short strike breaches: roll out in time for credit and nudge strikes 1–2 steps with the trend.
- If IV collapses faster than price moves, close—“good problems” get banked.
- Two adjustments max per trade; if still wrong, exit. The third “fix” is usually hope.
Exiting Losers (Fast, Clean, Consistent)
Small, quick losses keep the playbook alive. Dan predefines pain.
- Hard stop at 1.5× original credit (credit spreads) or 50% of debit paid (debit structures).
- Time stop: if the thesis hasn’t started working by halfway to expiry, cut or re-express.
- Event stop: flatten premium positions 24 hours before unknown binary events (unless it’s the planned earnings trade).
Using Volatility Properly
Volatility selection is half the strategy choice. Match structure to environment.
- High IV: sell premium with defined risk (iron condors, vertical credits); manage early.
- Low IV: buy time with calendars/diagonals or modest debit verticals.
- Transition periods: scale size down 30–50% and shorten DTE until the regime is clear.
The Daily Routine (Keep It Boring)
Routine beats brilliance. Dan’s day is a repeatable loop designed to protect capital and harvest edges.
- Pre-open: check overnight futures, economic calendar, and IV rank shifts; update watchlist.
- Midday: manage winners first (profit-take/roll), then deal with breaches—never the reverse.
- End-of-day: mark deltas, theta, and % to targets; queue tomorrow’s orders, not impulses.
Record-Keeping That Pays You
A simple journal makes the next trade smarter. Capture the handful of stats that actually move results.
- Log: setup type, IVR at entry, DTE, delta, credit/debit, max favorability (MAE/MFE), and reason for exit.
- Tag outcomes by management rule used; drop rules that underperform for 20+ samples.
- Review weekly: kill the bottom 10% of tactics, add size 10–20% to the top performers.
Tickers & Structure Fit
Not every ticker likes every structure. Dan matches product personality to tactic.
- High liquidity (SPY/QQQ/LIQUID NAMES): credit spreads and calendars scale best.
- Single-name with catalysts: earnings spreads or diagonals into the event.
- Choppy ETFs: iron condors with narrow wings; manage at 35–50% max profit.
Size Risk First: Define Max Loss, Then Build the Trade
Dan Passarelli starts with risk, not the setup. Before he worries about entries, he decides the exact dollar amount he’s willing to lose on the idea and caps position size to fit. That means choosing strike, width, and DTE only after the max loss is locked—so the trade is engineered to survive reality, not fantasy. If a position can’t be structured to keep risk within that limit, he passes and waits for one that can. The discipline is simple: the market can be wild, but your risk cannot.
He translates that into hard numbers: 1–2% of accounts at risk per trade, total portfolio heat controlled by reducing correlated exposure. For credit spreads, if the short strike breaches, the preplanned response is to roll or exit—never to “double up” and pray. For debits, he’ll cut fast at a fixed loss or when the thesis timer runs out, whichever comes first. Sizing also adapts to volatility: smaller when IV is uncertain, normal when conditions are stable. With this approach, as Dan Passarelli puts it, your edge isn’t a magical entry—your edge is making sure a single trade can’t wreck the next hundred.
Let Volatility Choose Structure: Sell High IV, Buy Time Low
Dan Passarelli keeps it simple: structure follows volatility. When IV is high, he prefers to be a net seller with defined risk—think vertical credit spreads, iron condors, or iron flies sized to collect at least one-third of width. He uses IV rank or percentile as the switch: roughly ≥40 favors selling premium because the market is likely overpricing moves. The goal is to let time decay and post-event volatility crush do the heavy lifting while keeping wings on to cap the worst case.
When IV is low, Dan Passarelli flips the script and becomes a net buyer of time. Calendars and diagonals come out when options are cheap, often placed near a “magnet” level where price can drift without needing a big move. He manages these by taking 25–40% returns on the debit or by reselling front-month options as they decay, compounding theta. The rule is elegant: match the structure to the regime, not the mood, and you’ll stop forcing trades that fight the environment.
Diversify by Underlying, Strategy, and Duration to Smooth Equity Curve
Dan Passarelli doesn’t let one ticker or one tactic dictate his month. He spreads exposure across uncorrelated underlyings, rotates between premium-selling and debit structures, and staggers expirations so P&L doesn’t hinge on a single Friday. By mixing indices with selective single names and a couple of sector ETFs, he reduces the chance that one headline takes down the whole book. The idea is simple: diversify the drivers of return—direction, volatility, and time—so you’re not betting your account on any one of them.
He also diversifies by duration, running 7–15 DTE tactical positions alongside 30–45 DTE income spreads and the occasional 60+ DTE calendar or diagonal. Dan Passarelli treats each “time bucket” like a different business line with its own rules and targets. If short premium wins early, he takes it and lets the longer-dated structures keep working; if the front end chops, the back end cushions the blows. This way, he builds a steadier equity curve where no single idea, asset, or expiry can dominate outcomes.
Mechanics Over Prediction: Preplanned Adjustments Win After Entry
Dan Passarelli says the market doesn’t pay you for being a fortune teller; it pays you for running your plan. He maps adjustments before entry—profit-take targets, breach triggers, roll rules—so there’s zero debate when price moves. If a short strike is tagged, he rolls out in time for a credit or exits clean; if a debit spread pops early, he scales out at the first target and lets a runner try for the second. The point is to automate decisions you’d otherwise botch under stress.
He also keeps a strict limit on tinkering: two adjustments per trade, then flat. Winners are managed first, with profits taken at predefined marks—often around 50% of max credit or a 25–40% return on debit—because giving back gains is just sloppiness. Losers get cut fast when the thesis timer expires, not when emotions do. In Dan Passarelli’s playbook, prediction is optional, but mechanics are non-negotiable.
Prefer Defined Risk: Vertical Credits, Earnings Checklists, Two-Adjustment Max
Dan Passarelli keeps the downside capped so the upside can compound. He prefers vertical credit spreads over naked short options because they lock in worst-case loss and simplify decisions under pressure. Into earnings, he uses a written checklist to size the spread, place short strikes just outside the implied move, and exit right after the report to capture volatility crush without gambling on post-mortem drift. Defined risk also makes portfolio heat predictable—no sudden margin shocks or runaway losses that hijack the rest of the book.
His management rule is minimalist: two adjustments max, then out. If a short strike is threatened, Dan Passarelli rolls out in time for a credit or shifts the structure one or two strikes with the prevailing move, but he refuses to widen risk just to “fix” the chart. Winners are taken early—around 50% of max credit—because letting theta do the last 50% exposes you to event landmines for diminishing returns. With these boundaries, defined-risk spreads become repeatable income engines instead of hope trades.
In the end, Dan Passarelli’s message is disarmingly consistent: management makes money, not crystal-ball predictions. He builds every trade around a written plan—risk-capped first, structure chosen second, adjustments scheduled before anything is filled. Volatility decides the tool: sell defined-risk premium when IV is rich and let theta plus post-event crush do the work; buy time with calendars or diagonals when options are cheap and you don’t need a moonshot to win. He favors vertical credits and tight earnings checklists that anchor strikes just outside the implied move, and he exits early once the edge is harvested rather than babysitting risk for diminishing pennies.
Process discipline ties it all together for Dan Passarelli: two adjustments max, journal every decision, and keep portfolio heat controlled by diversifying across underlyings, strategies, and durations. He staggers DTE so no single expiry or headline runs the month, cuts losers on schedule instead of on hope, and scales down when the volatility regime is unclear. The takeaway for traders is simple and usable: define pain, pre-commit to mechanics, let volatility choose the structure, and make your routine so boring that results become the exciting part.
