Closing short options at 50% profit

The rule

Close a short option once it has lost half its value, keeping half the premium. A common way to do it is a resting buy order at half the credit, placed when you open the trade. The idea is that the last half of the premium takes the longest to earn and carries most of the risk.

What it did on cash-secured puts

On cash-secured puts the rule helped where it mattered most. In a capital-year replay, an unmanaged put seller held to expiry through the 2022 bear and earned very little with an 18% to 23% drawdown, while the same entries closed at half the premium did much better, because most puts that would eventually have been assigned were closed at a profit first (127 of 174 on the QQQ baseline).

On a leveraged ETF the difference was starker: held to expiry, a 25-delta put returned minus 0.60% a fill on collateral; closed at half, plus 1.26%. On the paper book as a whole, close-at-half alone averaged plus 0.76% a trade against plus 1.00% held, so it is not always a return gain. It is tail control.

What it did on spreads

On put credit spreads the rule cost money. Across four replayed spread cells, holding to expiry beat taking profits at 25% and 50% of the credit in every case, and taking profits at 75% only tied or slightly beat it on one. Win rates rose with every early exit while total return fell, because the worst trades were gaps that the target never got a chance to catch.

The reason is the payoff. A spread's loss is already capped by the wing, so the early exit is giving up credit without buying much protection.

Using the rule

Treat the 50% close as a risk tool for positions without a hard floor, like cash-secured puts, rather than a universal improvement. Early closes do free capital sooner; whether that pays depends on redeploying it at the same edge right away, which our spread study did not measure. The guides on theta decay and rolling cover the other half of trade management.