Unit 4 · Level 2 · Managing the book
The 50% rule
You sold a spread for €2.00. Weeks later you can buy it back for €1.00: half the max profit, banked, with time to spare. Why not squeeze out the rest? Because the last euro decays slowly while the risk stays fully loaded: near expiry, gamma grows teeth, and one sharp day can turn a near-win into a max loss. Premium-selling communities converged on the same heuristic from thousands of trades: take profits around 50%, redeploy, repeat.
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What you get asked
What's the core logic behind closing a credit trade at 50% of max profit?
You've captured the fast half of the decay; what remains is slow profit guarded by growing gamma risk. Freeing the capital for a fresh trade usually beats babysitting the old one.
You sold an iron condor for a €2.00 credit. Following the 50% rule, at what buyback price (in €) do you close it?
Half the credit stays with you, half buys the position back: close at €1.00. Many traders enter this closing order the moment the trade is filled.
Near expiry, ___ risk rises sharply for short options.
Gamma measures how fast delta flips. Remember it from League 1. Near the strike, near expiry, a small stock move swings your P&L violently. That's the risk the 50% rule ducks.
Match the mechanical habit to its purpose
None of these numbers is sacred. Their power is being decided in advance. Mechanical exits are the options version of the stop-loss discipline from the Trading course.
A trader holds every spread to expiry 'because that's where max profit lives.' What's the flaw?
Chasing the last 10% of the credit through the riskiest week of the trade is bad expectancy per day of risk. Winners are closed early because the maths says so, not superstition. 🐜
The rest of this unit
Rolls, profit rules, assignment surprises: running a spread book like a professional.