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How do you defend a credit spread when it starts moving against you?
Here’s the thing — most traders wait until they hit the theoretical break-even point, that clean number your broker calculates for you. But that’s not the real break-even in the real world…
If you’re waiting for that magic number to show up on your screen, you’re already late. You’ve given back too much — maybe all of your credit, maybe more.
So here’s what I do instead: I set what I call a tripwire.
Think of it as your trade’s early warning system. It is a specific price level you set before the stock reaches your strikes. If the stock hits this line, it’s your cue to exit the trade immediately to preserve your capital before a small loss turns into a disaster.
Before I even get to that, let me make one thing clear about how I choose the spread in the first place. I take a broad market approach — I do not go against the grain.
If the Nasdaq 100 (QQQ) is getting soft and momentum is rolling over, I’m not putting on bull put spreads. That tool belongs in a bullish market.
In a bearish tape, I flip over to bear calls and stay aligned with the broader trend of the market. Keeping yourself on the right side of the market makes everything that comes after a whole lot easier.
What a Tripwire Is and Why It Matters
A tripwire is a defense line I draw before price ever touches my spread strikes.
It sits a little higher or lower than the spread itself — depending on whether I’m running a bull put or a bear call. If the stock starts moving against me and hits that tripwire, that’s my signal. Time to unwind.
Sometimes I save most of the credit. Sometimes I give back most of the capital required but I fend off a loss.
Either way, I’m not sitting there hoping it reverses. I’m cutting it before the damage gets real.
That’s the simplest way I know to come close to breaking even on a credit spread that’s going south.
Here’s another important layer: You can find a great-looking spread, perfect distance, perfect credit — and then you can’t get filled.
Liquidity matters — a lot.
If the spread has weak volume or wide bid-ask gaps, you’re fighting a battle you don’t have to fight. I stick to markets and setups where getting in and getting out isn’t a struggle.
The Saturday Night Surprise You Need to Know About
Here’s a quirk most people don’t think about: Assignment risk doesn’t end when the market closes Friday at 4 p.m.
The CBOE has until 11:59 p.m. ET Saturday night to assign options. Yes — Saturday night.
So if I have a credit spread that’s close to the money heading into expiration, I don’t mess around. I’ll unwind the whole thing — or at least buy back the short option.
It’s a small price to pay to avoid an assignment that shows up long after you think you’re done with the trade.
And just so we’re clear… I don’t sit around babysitting these trades all day.
I put the spread on, I set my tripwire and I go do something else. If it hits the wire, I handle it.
If it expires worthless, great — I keep the credit and move on.
That’s the process.
No drama. No heroics. Just a system that works whether I’m watching or not.
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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