Why Trade Management Matters More Than Entry
"Amateurs focus on entries. Professionals focus on exits and management."
Your entry is just 20% of a successful trade. The other 80% is how you manage it: when to take profits,
when to cut losses, how to adjust losing positions, and when to roll options forward. Master these skills
and your win rate will skyrocket.
💰 Profit-Taking Rules
The 50% Rule (Most Important!)
When selling options for credit, close the position when you've captured 50% of the max profit.
This is the single best profit-taking rule for premium sellers.
Why 50%?
- Captures the fastest part of theta decay (first 50% happens much faster than last 50%)
- Reduces tail risk dramatically (can't blow up if position is closed)
- Frees up capital to deploy into new trades
- Proven by tastyTrade research across millions of trades
Example:
Sell an iron condor for $2.00 credit ($200). When the position value drops to $1.00 ($100),
close it. You banked $100 profit (50% of max) and can now open a new trade with that capital.
Waiting for the last $100 exposes you to huge risk for minimal extra gain.
Time-Based Profit Taking
| Strategy Type |
Take Profit At |
Why |
| Credit Spreads |
50% of max profit |
Optimal risk/reward ratio |
| Iron Condors |
50% of max profit |
Same principle, proven effective |
| Long Options (Directional) |
100-200% gain or target hit |
Let winners run, but don't be greedy |
| Covered Calls |
25-50% of premium or assignment |
Can roll up and out if stock rallies |
| Vertical Spreads (Debit) |
75% of max profit |
Gamma risk increases near max profit |
The Trailing Stop Method
For long options that are winning, use a trailing stop to protect gains while letting winners run.
How it works:
- Once up 50%, set a mental stop at +25% (lock in half)
- Once up 100%, set stop at +50% (protect substantial gains)
- Once up 200%, set stop at +100% (worst case: double your money)
- Keep trailing as position goes higher
🛑 Managing Losing Positions
The Hard Stop-Loss Rule
Never let a loss exceed 2x your intended risk. If you planned to risk $100,
cut at -$200 maximum. No exceptions, no "waiting for a bounce," no hoping.
Hope is not a strategy.
- Long options: Cut at -50% to -75% loss (depending on time left)
- Credit spreads: Cut if position doubles in value (-100% loss)
- Defined-risk trades: Never let it reach max loss, cut at 75% of max
- Undefined-risk trades: Cut immediately if wrong (no room for error)
Decision Tree: Cut, Hold, or Adjust?
| Situation |
Time to Exp |
Action |
Reasoning |
| Down 25%, thesis intact |
>14 DTE |
HOLD |
Normal variance, give it time |
| Down 50%, thesis intact |
>14 DTE |
ADJUST or HOLD |
Consider rolling or adjusting |
| Down 50%, thesis broken |
Any |
CUT |
You were wrong, move on |
| Down 75% |
Any |
CUT IMMEDIATELY |
Catastrophic loss, protect capital |
| Down 25%, thesis intact |
<7 DTE |
CUT |
No time to recover |
💡 The 3-Strike Rule:
If you're wrong on the same symbol or strategy type 3 times in a row, STOP trading it for 2 weeks.
Your edge is gone or you're in a bad state of mind. Reset and reassess.
🔄 Rolling Positions Forward
What is Rolling?
Rolling means closing your current option position and simultaneously opening a new one with a later
expiration date (and sometimes a different strike). It extends your trade thesis.
✅ Roll When Winning (Covered Calls)
- Scenario: Stock at $105, your $100 covered call is ITM
- Action: Roll up and out to $110 strike next month
- Benefit: Collect more premium, avoid assignment
- Cost: Stock might run away from you
⚠️ Roll When Losing (Credit Spreads)
- Scenario: Sold $100/$105 call spread, stock at $103
- Action: Roll out to next month at same strikes
- Benefit: Collect credit, buy more time
- Risk: Might turn winner into bigger loser
✅ Roll to Capture More Premium (Wheel)
- Scenario: Cash-secured put at 75% profit
- Action: Roll out one week, same strike
- Benefit: Collect another week of premium
- Note: Popular with wheel strategy traders
❌ Don't Roll Indefinitely
- Max Rolls: 2-3 times maximum
- Why: Ties up capital, opportunity cost
- Alternative: Take the loss, move to better trade
- Exception: Wheel strategy can roll many times
🎯 Rolling Best Practices:
- Only roll for a net credit (collect more premium than you pay)
- Roll at least 21 DTE out (give position time to work)
- Don't roll more than 2-3 times on the same trade
- Roll winners to lock in gains, roll losers only if thesis intact
- Calculate your total invested capital - don't ignore rolled losses
🛡️ Hedging Techniques
Portfolio Hedging Strategies
| Hedge Type |
When to Use |
Cost |
Protection Level |
| Buying SPY/QQQ Puts |
Protect entire portfolio from crash |
High (2-5% of portfolio) |
Excellent |
| VIX Calls |
Hedge against volatility spike |
High (decay quickly) |
Excellent in crashes |
| Put Spreads |
Cheaper downside protection |
Medium (1-2%) |
Good (capped) |
| Inverse ETFs (SQQQ, SPXS) |
Quick hedge, no decay |
Low (just position size) |
Medium |
| Cash Position |
Ultimate hedge, always works |
Zero |
Limits gains too |
Single-Position Hedging
Protect individual trades without closing the position.
Hedge a Long Call
- Sell OTM call against it: Converts to call spread, locks in some profit
- Buy protective put: Converts to long straddle (expensive)
- Sell put spread below: Collect credit to offset call cost
Hedge Long Stock
- Covered call: Income, slight protection (not a real hedge)
- Protective put (married put): True insurance, expensive
- Collar: Buy put + sell call, zero cost but caps upside
- Put spread: Cheap downside protection with limited coverage
⚠️ Hedging Reality Check:
Hedges cost money and drag on performance. Only hedge when you genuinely believe risk is elevated.
Most traders over-hedge and kill their returns. Consider simply reducing position size or taking profits
instead of expensive hedges. "The best hedge is proper position sizing."
📊 Scaling In & Out
Scaling Into Winners (Pyramiding)
Add to winning positions as they prove themselves right. This is how you compound gains.
- Initial position: Risk 1% ($100 on $10k account)
- Up 50%: Add another 0.5% risk (half size)
- Up 100%: Add final 0.5% risk
- Result: Larger position in proven winner, small position in losers
Rule: Only add to winners, never average down on losers (unless it's a planned scale-in strategy).
Scaling Out of Positions
Take profits in tranches to balance locking in gains vs. letting winners run.
- First target (+50%): Close 1/3 of position
- Second target (+100%): Close another 1/3
- Final 1/3: Trail with stop or let run to TP
Benefit: Guarantees you take some profit while still participating in big moves.
Reduces regret whether position reverses or continues.