Position management for credit spreads

Spread is essentially risk defined. So, you accept the loss when you're entering it. We adjust naked sell positions, not spreads. If your sold put is getting tested, add call delta or roll out, but with spreads, there's no meaningful adjustment.

There's always meaningful adjustment as long as you're willing to inject more risk into the trade.

We?

* I use a large spread because I trade in far OTM strikes which are very illiquid. Using a large spread allows me to trade as few options as possible to achieve my income objective. * Assume we have a credit put spread and the underlying price is falling, the cost to close the position will increase as the price is falling. It will stop when the max loss is reached - it can be at the point when the long leg becomes ITM or beyond. Therefore, use a stop loss. * I would roll out but not right away. I will BTC first to minimize the loss then open the new position later when conditions are more favorable. * Always BTC as a spread. The house is burning - get out as fast as you can.

I use stop loss, i tend to target half the max loss. But If you can roll down and out for a credit that may be ok as long the underlying doesn't continue to fall

Depending on the underlying I might sell the long put and roll the short put. Credit is received on both trades. If/when the short put is assigned, the wheel starts turning. PEP is a currently a target of mine. Many opportunities with strikes in the 120s. PEP is a table pounder in the 120s.

Understanding that a credit spread is far more focused on volatility and vega rather than time decay is one of the more important aspects of spread writing.

I BTC as soon as my short is breached or even close to it. Often this means a loss \~2x initial credit. I can't claim the tactic is supported by backtesting, but it's what I do, Theory being that I entered the trade on the thesis the ticker is NOT moving in particular direction. If the short is threatened I take that as proof my thesis was wrong. I am not fond of rescue tactics. I'd rather take a loss and turn my attention to the next opportunity.

on (1): at the same max loss a $50-wide is really just a naked-ish put with a far-off disaster hedge, and a $5-wide is closer to binary. the wide one gives you more room, the long leg barely does anything until price is deep, so it bleeds slower and you can actually manage it. the narrow one hits max loss fast once you're breached but its downside is hard-capped over that $5. so wider isn't magic, you're just choosing how naked you want to be for that max loss. on (2): once price is inside the spread your entry thesis (stays above the short) is already wrong, so i treat that as the exit signal, not a place to get creative. rolling a tested spread mostly buys time for very little credit and adds risk. i'd rather take the loss at a pre-set stop and move on. the one exception is if i actually want the shares, then i'll drop the long leg and let the short work toward assignment, but be clear that's now a naked put with undefined risk tying up naked/cash-secured buying power, not a spread anymore.