Adjusting Options Trades Mid-Course

Options positions rarely work out exactly as planned. When the underlying moves against you, time passes, or volatility shifts, adjustments can help manage risk, lock in profits, or convert a losing trade into a winning one. Knowing when and how to adjust is a critical skill.

Definition and Key Concepts

What Is an Adjustment?

An adjustment is any modification to an existing options position, including:

• Rolling (moving to different strikes or expirations)
• Adding legs (converting a naked option to a spread)
• Closing part of the position (scaling out)
• Hedging with stock or other options

When to Consider Adjusting

Common triggers for adjustments:

• Position delta exceeds comfort level
• Short strike is being tested (price approaching)
• Profit target reached (close or convert to lock in gains)
• Time decay becoming unfavorable
• Volatility shift changing position dynamics

Adjustment Goals

How It Works in Practice

Rolling Strikes

When a short option is tested, rolling the strike moves it further away from the current price.

Example: Short Put Under Pressure

Original: Short XYZ $50 put for $2.00 credit XYZ falls to $51 (approaching strike)

Roll: Buy back $50 put at $3.50, sell $47.50 put at $2.00

• Debit to close: $3.50
• Credit from new: $2.00
• Net debit: $1.50
• New position: Short $47.50 put

Result: More breathing room, but $1.50 added to potential loss.

Rolling Expirations

When time runs short, rolling to a later expiration provides additional time and collects more premium.

Example: Iron Condor Approaching Expiration

Original: 21 DTE iron condor with $1.50 credit Price near short strike, only $0.40 remaining value

Roll: Close current position for $1.10, open new 45 DTE condor for $1.80 credit

• Cost to close: $1.10 (realized profit: $1.50 - $1.10 = $0.40)
• New credit: $1.80
• Net result: Locked in $0.40, reset with more time

Adding Legs to Existing Positions

Converting a naked option to a spread defines risk and often improves the position.

Example: Long Call Declining

Original: Long XYZ $50 call at $4.00 XYZ drops to $48, call now worth $2.00

Adjustment: Sell $55 call for $0.80, creating a spread

• New position: Bull call spread
• Reduced cost basis: $4.00 - $0.80 = $3.20
• Capped upside at $55

Scaling Out

When profits accumulate, partial closing locks in gains while maintaining exposure.

Example: Profitable Bull Call Spread

Original: 5 contracts, cost $1.50 each, now worth $3.50 Adjustment: Close 3 contracts, keep 2

• Realized profit: ($3.50 - $1.50) × 3 = $6.00 per contract × 100 = $600
• Remaining position: 2 contracts with $200 of remaining profit potential

Worked Example

Managing a Challenged Iron Condor

Initial Position (Day 1):

• SPY at $450
• Sell $440/$435 put spread, $1.20 credit
• Sell $460/$465 call spread, $1.30 credit
• Total credit: $2.50
• Max loss: $5.00 - $2.50 = $2.50

Day 10: SPY Drops to $443

The put spread is being tested. Delta has shifted against you.

Adjustment Options:

Option 1: Close Entire Position

• Close for $3.15, realize $0.65 loss
• Preserves capital, avoids further loss

Option 2: Close Call Spread, Hold Put Spread

• Buy back call spread for $0.35, realize $0.95 profit on calls
• Continue holding put spread
• Risk: $2.50 - $0.95 = $1.55 remaining exposure

Option 3: Roll Put Spread Down

• Buy back $440/$435 put spread for $2.80
• Sell $435/$430 put spread for $1.50
• Net debit: $1.30
• New breakeven: $435 - ($2.50 - $1.30 - $0.95) = $435 - $0.25 = $434.75

Option 4: Convert to Broken-Wing Butterfly

• Buy back $435 put for $0.60
• Sell additional $440 put for $2.20
• Creates asymmetric structure with reduced upside risk

Analysis:

Choosing depends on your outlook: if you expect SPY to stabilize, rolling or waiting may be appropriate. If you expect continued decline, closing limits damage.

Risks, Limitations, and Tradeoffs

Adjustment Costs

Every adjustment incurs transaction costs:

• Commissions (often $0.65 per contract)
• Bid-ask spread slippage
• For a 4-leg adjustment, costs can reach $20-40

Factor these into profitability calculations.

Doubling Down Risk

Rolling for credit often adds to position size or extends duration. This increases exposure—you're not reducing risk, you're betting more on being right.

Adjustment Timing

Too early: You pay to adjust a position that would have worked out Too late: The position is so far gone that adjustments are expensive or ineffective

Analysis Paralysis

Overthinking adjustments can lead to poor execution. Have predefined rules:

• "If delta exceeds X, adjust"
• "If price breaches short strike, close"
• "At 50% profit, close"

Common Pitfalls

1. Rolling indefinitely: Constantly rolling a losing position increases losses rather than cutting them.

2. Ignoring transaction costs: Multiple adjustments can consume more than the original credit.

3. Adjusting winners prematurely: Closing too early leaves money on the table.

4. Lack of plan: Adjusting reactively without criteria leads to poor decisions.

5. Not tracking adjusted cost basis: After multiple rolls, knowing true breakeven becomes difficult.

Checklist for Making Adjustments

• Define adjustment criteria before entering the trade
• Calculate current position Greeks and compare to targets
• Identify which leg(s) are causing the problem
• Consider all options: close, roll, add legs, do nothing
• Calculate cost and new risk profile for each option
• Factor in transaction costs
• Execute adjustment decisively once decision is made
• Update records with new cost basis and targets
• Set new adjustment triggers for the modified position

Next Steps

Rolling is one of the most common adjustments. See Rolling Strategies Pre-Expiration for detailed techniques on when and how to roll effectively.

For understanding how position Greeks guide adjustment decisions, review Position Greeks vs. Individual Leg Greeks.