I'm learning options and understand that there are different method to manage trades that go wrong. In case of the Call/Put butterfly whenever the price goes above upper breakeven or goes below lower breakeven, what are the different ways in which we can minimize our loss or even stay profitable.

1 Answer 1


The basic idea with adjustments is that you want to adjust a short leg before it goes in-the-money in order to avoid its increasingly higher delta loss that requires you to buy back intrinsic value. The price of the underlying to do this will depend on the individual option prices, the option position's P&L as well as some of the option variables (implied volatility, time remaining until expiration). It's beyond the scope of a simple answer.

The general rule is sell time to avoid short intrinsic value. This can be done in different ways.

  • Could you please elaborate on "sell time to avoid short intrinsic value" that went over my head :)
    – Martin
    Commented Jul 3, 2021 at 19:05
  • 1
    Simple example. Stock is $105. You sell a 3 week $100 put for $2. Two weeks later, XYZ is $100 and put is still worth $2 (2 weeks of time decay offset 5 pts of underlying drop). If you want the stock at $98, do nothing and maybe you're assigned. Maybe you don't want assignment. If it hits $95, rolling or closing will cost you a minimum of $5 of intrinsic value to buy the short put back. If you prefer the income, roll the short put down to $95 and out 2 more weeks for break even (or better). If it works out, you keep the $2. If not, cost basis if assigned is now $93. Wash, rinse, repeat? Commented Jul 3, 2021 at 20:00

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