Cheat Sheet: Management & Adjustment Rules

Quick-reference card for managing and defending short-premium trades the systematic way. Scan, don't read. All numbers are house defaults — calibrate to your own risk. Pairs with ../05_trade_management/ and ../21_trade_adjustments/.

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1. Profit-Taking & Time Stop (the two pillars)

Core mantra: _"Manage at the profit target, or at 21 DTE — whichever comes first."_

Why these numbers:

50% raises win rate and return-per-day vs. holding to expiration; you skip the low-reward, high-gamma back half of the cycle.
25% for ATM — straddles/iron flies collect a huge credit fast and carry the most gamma; backtest moving target 50%→25% gave ~+11% total profit, ~+16pp win rate, ~−40% time-in-trade. Do not export 25% to OTM condors — there it shrinks per-trade profit below frictions.
21 DTE — gamma escalates sharply in the final ~3 weeks; an adverse move then loses at an accelerating rate. Step out of the way.

Math shortcut: target profit = `target% × credit`. 50% of a $3.00 strangle → buy back near $1.50. 25% of an $8.00 straddle → buy back near $6.00.

Mechanize it: stage a GTC "Close at Profit Percent (% of Max Profit)" order at entry so the win is taken without watching the screen.

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2. Adjustment Decision Tree (when a position is tested)

A trade is "tested" when price approaches/breaches one short strike. Work top-down — stop at the first action that fits.

Golden rule governing every branch: an adjustment is only worth making if it collects a credit (or at minimum does not increase risk for a debit). If you can't get paid to adjust, the move is usually to close, not to pay up to stay in.

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3. Rolling Rules (the non-negotiables)

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4. Inversion (last resort before taking the loss)

When the untested side is too close to the tested side to roll for meaningful credit, you can invert: roll the untested short through the tested strike (calls below puts, or vice-versa), collecting credit.

Hard cap: keep the inversion width ≤ total credit collected so the position still has a profit zone / can't be a guaranteed loser.
Inverting a straddle turns it into an inverted strangle; it widens your effective breakevens at the cost of an overlapping loss zone.
Un-invert later if price comes back, or roll out in time to give it room.

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5. Covered Call / PMCC Rolls

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6. One-Glance Summary

Win: take 50% (OTM) / 25% (ATM) — mechanize with a GTC profit-% order.
Time: at ~21 DTE, close or roll regardless of P/L — gamma is the enemy.
Tested: roll the untested side for credit → roll out in time → invert (≤ credit collected) → take the loss.
Always: roll only for a credit; never add uncompensated risk; defined-risk rolls are usually not worth it.
CC/PMCC: roll the short call up and out for a credit; protect the long leg; close shorts before expiration if ITM.

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Cross-references

../05_trade_management/ · ../21_trade_adjustments/ · ../09_strangles/ · ../09_strangles/short-straddle.md · ../10_iron_condors/ · ../11_credit_spreads/ · ../07_short_premium/covered-call.md · ../13_diagonals/poor-mans-covered-call.md · ../19_risk_management/ · ../18_research_findings/21-dte-management.md · ../18_research_findings/straddle-management-25-percent.md

Sources

industry education — Managing Winning Options Positions (the 50% rule): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — Straddles | Managing Winners (2015-05-14; 25% target, +11%/+16pp/−40%): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — 21 DTE Management (2019-09-18): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — 21 Day Management Exceptions (2019-09-17): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry education — What is Gamma in Options Trading? (gamma rises into expiration): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — Why We Roll Strangles (2016-10-28; roll for credit): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — Rolling Strangles (2016-02-18; roll untested side, win-rate/P/L lift): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — Rolling at 21 Days to Expiration (2018-11-30): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — Why Rolling Defined Risk for a Credit Is Difficult (2016-01-22): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
industry research — Inverted Adjustments (2016-06-13): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
broker education — Close at Profit Percent Order (% of Max Profit): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
broker education — Covered Call (Long Stock and Short Call): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
broker education — How to Sell a Covered Call Position: https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
options education — Long Call Diagonal Spread (PMCC): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document
options education — Iron Condor Strategy Guide (why 25% hurts OTM): https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document

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_Evidence-labeled per the Project Charter. Education only, not financial advice._