Taking Profits Early on Short Options - The 50% Rule and Other Profit Exits
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Calculate the buy-back price and the profit kept for a percentage-of-credit profit exit, and compare what is left to earn with what is still at risk.
Taking profits early on a short option means buying it back before expiration once most of its premium has been earned, instead of waiting for it to expire worthless. A common version is the 50% rule: close the trade once the option costs half of what you sold it for.
The appeal is simple. When you sell an option, the most you can ever make is the credit. Once much of it is earned, the rest of the trade is a small remaining reward against a risk that has not shrunk nearly as much. This lesson puts numbers on that trade-off with the module's running example. It describes rules traders use; it does not claim that any of them produces better results.
How does a short option earn its profit?
A seller profits when the option loses value, and time decay is one of the main ways it does. With the stock unchanged, the option's time value drains every day until nothing is left at expiration.
Worked example
How the XYZ 48 put loses value if XYZ stays at $50
You sold one XYZ 48 put with 45 days left for $1.12 ($112). If XYZ stays at exactly $50 and implied volatility stays at 30%, the model prices the put to buy back at:
Half the credit is earned after 25 days, with 20 still to go. The second half takes those remaining 20 days.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
What the sold put is worth as time passes, XYZ unchanged
Cost to buy the put back, per contract
Real trades rarely follow this table, because the stock moves and implied volatility changes. A drop in implied volatility can hand a seller the 50% target in days; a fall in the stock can push the put's price above what was received. The table isolates the effect of time alone.
What is left to earn, and what is still at risk?
Here is the core of the argument for early profit-taking. At the halfway point in the example, 20 days left with XYZ at $50:
- Left to earn: $56. That is the most that holding to expiration can add.
- Still at risk: the put still obliges you to buy 100 shares at $48 if assigned. In the theoretical worst case, XYZ going to zero, the put would cost $4,800 to close, $4,744 more than today.
That worst case is extreme, and a typical bad outcome is far smaller. But the shape is what matters: the reward left has shrunk to $56, while the position still carries most of the downside it started with.
This short put can lose up to ($48 x 100) - $112 = $4,688 from entry if XYZ went to zero. A profit target or a loss exit does not cap a gap: if XYZ opens far below $48, the put is bought back at whatever it costs then.
At the halfway point: what is left to earn vs what is still at risk
Holding the last 20 days, per contract
Closing at the target also frees the capital or margin the short put ties up, so it can back a new trade. A trader who closes winners early and opens fresh positions is choosing to collect the first part of the credit more often, rather than holding through the last weeks for the rest. Time decay itself does not stop in those weeks: in the table, the last 20 days earn $56 (about $2.80 a day), faster than the first 25 days' $56 at $2.24 a day. What changes is how little is left to earn against how much is still at risk. Whether that improves results depends on the trades that follow, and no rule guarantees it.
What profit-taking rules do traders use?
These are examples of rules option sellers describe, not recommendations:
- Percentage of credit. Buy back once a set share of the credit is earned, such as 50% or 75%. It is easy to place as a good-'til-canceled limit order the day you open the trade.
- Days to expiration. Close at a fixed point, such as 21 days left, whatever the profit. Paired with a percentage target, the plan needs a rule for which exit wins; Options Exit Strategy works through that rule for this put.
- Cheap enough to close. Buy back once the option costs only a few cents. The Options Industry Council quotes a saying some investors use, "when in doubt, close them out", because a short option that has been bought back cannot be assigned.
Each rule has a cost. Closing at 50% gives up the other half on every trade that would have expired worthless. Holding to expiration keeps it, but accepts every late move against you. Choose before entering, and judge the rule across many trades in your journal, not by the one that would have worked better.
What does the profit exit look like as an order?
If you sold the put for $1.12 and want to close at 50%, the order is buy to close 1 XYZ 48 put, limit $0.56, good-'til-canceled if your broker offers it. It fills only if a seller accepts $0.56 or less, so in a fast market it may fill at a better price or not at all. Commissions and the bid-ask spread come out of the profit; on a cheap option a few cents of spread is a large share of what is left.
Check your understanding
You sold a put for $2.40 and use a 50% profit exit. What limit price do you place, and what do you keep?
Show answer
Buy to close at $1.20, keeping $240 - $120 = $120 per contract before fees.
In the example, with 7 days left the put costs $0.17. What does holding to expiration add, at most?
Show answer
$17 per contract, the remaining premium. In exchange, the position keeps its assignment risk and its exposure to a late drop in XYZ.
Why does a fixed 50% rule not tell you how long a trade will take?
Show answer
Because time is only one force on the price. A drop in implied volatility or a rise in the stock can reach the target quickly; a fall in the stock can delay it or push the trade to a loss.
Key takeaways
- Taking profits early means buying back a short option before expiration once a planned share of the credit is earned.
- With the stock unchanged, the model's XYZ 48 put loses half its value in 25 days and the other half in the last 20.
- Near the end, little reward remains while most of the downside is still there; closing ends that risk and frees capital.
- Profit rules such as 50% of credit or 21 days left are examples traders use, not recommendations; each one gives something up.
Common questions
When should you take profits on a short option?
There is no single right point. Many sellers use a rule set before the trade, such as buying back once half or three quarters of the credit is earned, or closing at a set number of days before expiration. The rule matters more than the exact number, because it removes the decision from the moment.
What is the 50% rule in options selling?
It is a common profit exit for short options: buy the option back once its price has fallen to half of what you sold it for, keeping half the credit. It is a rule of thumb traders use, not a law or a guarantee of better results.
Should you let short options expire worthless?
You can, and it saves the cost of buying back. But until expiration you still carry the full risk of the position, including assignment risk for American-style options, for whatever premium is left. Many sellers prefer to close a nearly worthless option for a few cents.
Is it better to take profits early or hold to expiration?
Neither is better in every case. Closing early gives up the remaining premium but ends the risk and frees the capital. Holding keeps the chance of the full credit but leaves the position exposed to a late move. Which suits you depends on your plan, not on one trade's outcome.