CHOOSING STRIKES & EXPIRY: THREE FILTERS

How a spread gets built in this course: Stage 3’s levels choose the neighbourhood, Stage 6’s Greeks check the odds and the rent, Stage 4’s brakes check the account — in that order. Watch the same Oct 9 map produce two different trades for two different views, and learn why 0DTE is not one of them. Choosing strikes is apartment-hunting with a checklist instead of a feeling. The neighbourhood comes first (levels): a beautiful kitchen in a building you’d never live in is not a candidate, it’s a distraction. Then the unit’s mechanics (Greeks): the rent, the noise, whether the windows actually open — delta, theta, IV, the bid/ask. Then, last and non-negotiable, the budget (brakes): the division, which vetoes anything the first two filters fell in love with. People who apartment-hunt backwards — budget never checked, neighbourhood decided by the prettiest listing — end up house-poor and surprised. Traders who pick strikes backwards — starting from the cheapest premium on the chain — end up strike-poor the same way. The order of the filters is the lesson.

THREE FILTERS · STAGE 7 · LESSON 5

THE TAKEAWAYS

• Filter 1 in action, on the course’s own map (Oct 15, 2026 close 770.49; Stage 3): support shelf 766–767, resistance zone 779–782, the 773 area in between. This is why Lesson 4’s credit spread sold the 765 put — just under the shelf, so the market must break a mapped level, not merely drift, to hurt it — and why a bullish debit structure aims its short leg at or through the 779–782 ceiling rather than parking it at 800 ‘for room’: the cap should sit where the view’s job gets hard, because that is where the premium for selling it is honest.
• Filter 2 is a checklist read off real rows, not a vibe: long-leg delta 0.50–0.65 (Stage 6’s hunt zone — the 773C at 0.61 and the 780C at 0.54 both pass; the 785C at 0.48 does not get to be a long leg here); on credit structures, the short strike at roughly 0.30 delta or less — a course convention, stated as one, meaning the market’s own rough odds (Stage 6) price expiry beyond it at under ~30%; net theta read and affordable either way; IV compared with its range (13% on this chain is calm — Stage 6); and every leg’s bid/ask measured: this chain’s are $0.04–$0.15 wide, crossable twice without donating the edge (Stage 5’s rule).
• Filter 3 ends arguments: the division runs on the structure’s max loss at the entry method you will actually use, and on the SUM of worst cases across all open structures (Lesson 4’s correlation warning). The $10,000 course account’s $100 budget passes the 773/775 ($148)? No — $148 > $100: it passes nothing in Stage 7 so far except smaller or nearer structures, and the correct output of the filter on a small account is often ‘not yet, on paper yes’. A filter that never says no is a decoration.
• Two structures, one map — the comparison this lesson exists for: STAYS-UP (mild view: SPY holds above the shelf and leans up): buy the 773 call at 20.68, sell the 775 call at 19.20 — debit 1.48, max loss $148, max gain $52, breakeven 774.48 — below the 778.12 spot, so the trade profits at expiry even if SPY merely stands still; its breakeven win rate is 74.0% (148 ÷ 200), the debit family wearing credit-family geometry. GOES-UP (stronger view): Lesson 3’s 780/785 — $296 at risk, $204 on the table, breakeven 782.96, hurdle 59.2%. Neither is ‘safer’ in the abstract: the first risks less to make less with a lower bar; the second risks more with a higher bar and more headroom. The view picks. The filters judge. The budget vetoes.

WORKED EXAMPLE — STEP BY STEP

1. Set the view in one sentence before opening the chain — the discipline from Stage 3: ‘SPY holds the 766–767 shelf and leans up into the 779–782 zone over the next few weeks; a daily close below 766 breaks the idea.’ That sentence carries the direction, the invalidation, and the clock. A view that can’t be written in one sentence isn’t ready to be filtered.
2. Filter 1 — levels: the short leg must sit at or beyond where the view’s job gets hard. For a mildly bullish read, the 775 call (inside the run-up to resistance, real ask-side neighbour of the shelf structure) or Lesson 3’s 785 (just through the zone). For the credit side, the shelf itself fixes the short put below it — 765, as Lesson 4 built. Any candidate short strike parked exactly ON 767 or 780 fails this filter: levels are visited; beyond them is where structures should live.
3. Filter 2 — Greeks, from the real rows: long-leg candidates 773C (Δ 0.61, θ −0.19, IV 13.1%, spread $0.15) and 780C (Δ 0.54, θ −0.19, IV 12.5%, spread $0.04) — both inside the zone, both crossable. Net thetas: the 773/775 structure rents at ≈ $0 a day at entry (−0.19 against +0.19 — the two legs’ thetas are identical on this chain, a coincidence of neighbours); the 780/785 at ≈ −$1. Note the pattern for your own chain work: nearer, narrower structures rent slower and cap sooner; wider, further ones cost more and breathe more.
4. Price both survivors in full (all arithmetic on the chain’s quoted sides): 773/775 — debit 20.68 − 19.20 = 1.48; max loss $148; max gain (2.00 − 1.48) = $52; breakeven 774.48; hurdle 148 ÷ 200 = 74.0%. 780/785 — debit 2.96; max loss $296; max gain $204; breakeven 782.96; hurdle 59.2%. Same view family, two honest geometries. There is no third step called ‘pick the exciting one’.
5. Filter 3 — brakes, and the expiry call: on the $25,000 example account ($250 budget), the 773/775 passes ($148 ≤ $250) and the 780/785 fails ($296 > $250). Expiry: the view’s horizon is ‘the next few weeks’ — the chain’s Nov 30 pill (52 DTE) covers it with the plan’s exit scheduled well before the final week; Dec 18 (70 DTE) costs more premium for time the view doesn’t need. Verdict written to the journal before any ticket exists: 773/775 debit vertical, Nov 30 expiry, one contract maximum on this account — Lesson 6 builds exactly this trade, ticket by ticket.

WHY 0DTE IS NOT IN THIS COURSE (YET)

Same-day-expiry contracts are the extreme end of everything Stage 6 measured: gamma at its maximum (delta swings violently on small moves), theta as a cliff rather than a slope, pin risk measured in minutes instead of days, and no time for the plan–limit-order–journal method this course runs on — by the time a five-line plan is read back, the trade it described no longer exists. None of that makes 0DTE evil; it makes it a different sport played at professional speed, and a beginner curriculum that started there would be teaching reflexes before arithmetic. This course’s method deliberately works at the chain’s Nov 30 / Dec 18 horizon, where a plan survives contact with the market for weeks. Same-day mechanics appear later as a Layer ∞ elective, for readers who have finished the stages and want to study the instrument — labeled, bounded, and never the default. Sequencing is a safety feature: the filters must be reflexes before the clock becomes a weapon.

COMMON BEGINNER MISTAKES

• Picking strikes from the premium column — cheapest first. Price is the output of the filters, never the input.
• Parking a short strike exactly on a mapped level. Levels get visited and tested; short legs belong beyond them, where the market must do real work to reach you.
• Treating width as a detail: $2-wide and $5-wide structures on the same view are different trades — different debits, different caps, different hurdles (74.0% vs 59.2% on this page).
• Choosing expiry to make the ticket affordable. A nearer expiry is a different trade (faster theta, nearer gamma), not a discount on the same one — and the final week is excluded by plan.

CHECK YOURSELF

DO IT — RUN ONE VIEW THROUGH ALL THREE FILTERS

Write one SPY view in a single sentence (direction, invalidation level, horizon). Then run it through the filters on a current chain, in writing: two candidate structures that pass Filter 1, their Filter 2 numbers read off real rows (deltas, thetas, IV, each leg’s bid/ask width), both fully priced (three numbers + hurdle each), and Filter 3’s verdict at your real budget — including the word ‘none’ if that’s the honest output. Add one line on expiry: which pill covers the horizon, and the date you’d exit by. Paper only; this worksheet is a gate artefact, and it is the last piece of homework before Lesson 6 builds a trade end to end.