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Best Practices

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Trade Defense and Exit

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Today, Tom and Tony walked us through the actions we should take to defend and exit a trade.

After entering a trade, we can defend our trade with a plan if our trade is tested. For example, to defend a strangle, we can roll the untested call down if the downside put is tested, or we can roll the untested put up if the upside call is tested. And we can also use similar mechanics to defend a wide iron condor if its breakeven is tested.

When we are exiting a trade, first we look to exit at 50% of max profit, and if 50% of max profit has never been achieved by 21 DTE, we look to exit the trade at 21 DTE. According to our study on 16 delta strangles on SPY, this method is preferred compared to simply seeking 50% of max profit or exiting at 21 DTE separately.

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