Managing winners

For each position: the point to take or lock the gain, what that gives up, and the cases where letting it run is the better bet. The numbers are the ones our backtests use.

Rule 1Take profit at a number, not a feeling.On short premium, half the max profit is a common one. Our backtests close at 50%.

Rule 2The last dollars carry the most risk.Near expiry a little premium left can flip with one move. Close or roll before the last weeks.

Rule 3Lock gains on long positions before you need to.A put under it, or a call sold above it, turns a paper gain into a floor.

Your position	What happened	Manage it	What you give up	Let it run when
Stock and covered positions
Long shares	Up 10–20%	Put a floor under itBuy a put below the price, or a collar: the put paid for by a call sold above.	The put's premium, or the upside above the call.	The trend is strong and you would rather risk the gain than pay for protection.
Covered call	The call is at half its credit	Buy it back, sell the next oneClose the call at 50% of what you sold it for and sell a new one for the next cycle.	The few days of premium left.	It is worth under about $0.05 with a few days left: let it expire.
Cash-secured put	The put is at half its credit	Buy it back, sell a new putClose at 50% and sell the next put; the cash goes straight back to work.	The rest of the premium.	It is nearly worthless with a day or two left: let it expire.
Short premium · undefined risk
Short strangle	Half the credit is in	Close itBuy both sides back at 50% of the credit, then open the next one.	The other half, earned slowly and with more risk.	Rarely. Holding for the last half means more days of the same risk for less pay.
Short strangle	21 days left, still in profit	Close itClose with about three weeks left, whatever the profit: gamma rises fast after that.	The last weeks of theta.	Never into earnings. Otherwise, only with both strikes far away.
Short straddle	25–50% in profit	Buy wings, or closeTurn it into an iron fly with part of the gain, or take the profit.	The wing cost, or the rest of the credit.	You can lock a no-loss fly: wings no wider than the credit left after paying for them.
Defined risk
Iron condor	Half the max profit is in	Close the whole condorBuy all four legs back at 50% of the credit, or with 21 days left.	The rest of the credit.	Rarely: the remaining profit is small next to the max loss still at risk.
Credit spread	50–75% of the max profit	Close itBuy the spread back; the last part takes the longest and carries pin risk at expiry.	The last quarter or so of the credit.	Both strikes are far out of the money with days left.
Calendar spread	Up about 25% on the debit	Close itCalendars peak when the stock sits at the strike near the front expiry, and give it back fast when it moves.	Any extra if the stock pins the strike.	The stock is right at the strike, with a week or so to the front expiry.
Long options
LEAPS	Up about 10%	Lock part of the gainSell a call on the same expiry (a protective spread) or buy a put under it (a floor), as our LEAPS strategies do.	The upside above the call, or the put's premium.	A strong trend, and you accept giving the gain back.
LEAPS	Deep in the money (0.95 Δ), or 270 days left	Roll itSell it and buy a new ~2-year LEAPS call near 0.80 Δ: cash comes out and the time value resets.	Commissions, and a little new time value.	Never past 270 days left: time decay speeds up from there.
Long put (a hedge)	The market fell; the put is worth 3× its cost	Take the gain, buy a fresh putSell it and buy a new cheap put further down, as our crash put does.	Protection now starts lower.	The fall is still speeding up and you want the full payoff.

Defending a trade →The trade is going against you. What now? Practise it →Replay March 2020 in the simulator and defend a short strangle day by day. See the rules in backtests →Our strategies use these exits; see how they did year by year.

Rules of thumb, not advice: disclaimer.