Melt butter in a medium size heavy pot while you dice onion. Add onion to the pot once butter is hot and saute 5-7 minutes until translucent and soft.
3 tablespoons butter, 1/4 cup onion
Add flour and stir, cooking 2-3 minutes while stirring to help break down the onion.
3 tablespoons flour
Add milk slowly, whisking to avoid any lumps forming.
2 cups milk
Once all milk is incorporated and warm but not boiling, add hot sauce then shredded cheese one handful at a time, stirring between additions to melt cheese before adding any more.
1 tablespoon hot sauce, 4 cups cheddar cheese
Once the cheese is completely melted and incorporated, ad the jalapeno if you plan to use it. Then remove from the heat and serve.