Definition
Exit rules are a trader's predefined conditions for closing an options position — the profit target, the maximum tolerable loss, and the time horizon at which the trade is reassessed. They are decided before entry, when judgment is unclouded by an open position.
Because options decay with time and respond sharply to price moves, an entry without a planned exit is only half a trade. Exit rules convert a vague intention into a concrete, repeatable discipline.
Why it matters
How it works
A typical framework combines three triggers. The profit target is often a percentage of maximum potential gain — for example, closing a credit position once half the premium has been captured. The stop-loss is a multiple of the credit received or a fixed dollar amount. The time exit closes or rolls the position a set number of days before expiration to escape the steepest part of time decay.
When any trigger fires, the trader acts without renegotiating the plan. Reviewing whether the rules themselves were sound belongs to a later post-trade analysis — not to the live moment when a position is moving against expectations.