Here’s the thing about credit spreads: The hardest part isn’t picking the trade. It’s deciding what to do when it’s time to get out.
I’ve been trading these things for decades, and I still see traders freeze up when it’s decision time. They know their entry and their max risk, but when the clock’s ticking down to expiration, they start second-guessing everything.
And a lot of that second-guessing comes from emotion. Every trader has lived through the moment where you look at the screen and think, if I had just done nothing, I would have been fine. But then your rules kick in and tell you the risk of ruin is staring you in the face, so you close it because you know there’s always another day to trade. That push-and-pull between fear and discipline is part of the game.
So let me walk you through the framework I use every single time — three clear choices when it comes to unwinding a credit spread.
The 3-Choice Framework
Choice A is to do nothing if you think the options are going to be out-of-the-money (OTM). I know that sounds simple, but this is often the right call — and it’s also the most painful one to sit through.
Choice B is to unwind the position close to break-even if you use a trip wire system. You’ve got a predetermined level where you exit, no questions asked. You hit it, you’re out.
Choice C is to take off the short piece and stay long the long piece — if you have the cash and capital to do it. This one’s more aggressive, but it can work if you’ve got the room and the conviction.
But here’s where most traders stumble: They deviate. They adjust the plan on the way in, then adjust again on the way out. Once you start bending rules, it’s hard to stop, and you end up with a position that doesn’t look anything like the one you intended to trade. That’s when risk management stops being a system and turns into improvisation — and that’s dangerous.
Here’s the brutal truth: It sucks to look back in hindsight and think, if I would have just done nothing, I would have been right. I get it, but that’s part of the business. You can’t trade on hindsight — you can only trade on the system you built before you entered the position.
The key is knowing your maximum risk going into the trade. Not guessing, not hoping — knowing. And once you know that number, you’ve got to have the discipline to stick to your plan, whether that’s doing nothing, unwinding at your trip wire or converting the position.
Why Sticking to the System Matters More Than Being Right
Look, there’s nothing that works 100% of the time — not my system, not yours, not anybody’s. Even when you take the loss, if you like the system, you stick to it. You don’t quit just because one trade didn’t go your way.
A lot of people want to bail after a big loss — they look at it as proof the system doesn’t work. But traders who last understand something important: Every strategy has rough patches. Some trades leave you stuck longer than you want, some wake you up fast, and some just punch you in the gut.
But each one teaches you something — about your system, about your discipline, about your ability to stay steady when things go sideways. That’s where growth comes from, not from the winners but from the moments that force you to tighten your process and recommit to what works.
So before you enter your next credit spread, ask yourself: Do I know my three choices? Do I know my max risk? And am I willing to stick to the plan even when it’s uncomfortable? Because that’s what separates the traders who last from the ones who don’t.
Trade well,
Jack Carter
Jack Carter Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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