I bought an iron condor on AMZN a few weeks ago.  It got out of control pretty quickly and soon blew past the 992.5 call.  I ended up eating most of my maximum loss, but I could've closed a lot earlier and saved myself a lot of money.  

I know hindsight is always 20/20, and I should expect to take losses every so often (I keep probability above 70%).    But at what point should I fold when the stock starts to move against me?   Is there any "best practice" for this situation?

Without knowing what your level of knowledge and experience relative to options trading is, my first response is to tell you that you really NEED TO FULLY UNDERSTAND how options trading works. Of all the various combinations of calls, puts, straddles etc. there are only two types of trades with minimal risk. All the others range from a known amount of loss risk to actually UNLIMITED loss potential. It has been 10 years since I dealt with options when I worked at Fidelity. Quite frankly I have forgotten most of what I knew since after I left, I had no further need to keep it in my head.

There are all kinds of triggers depending on whether or not you bought or sold the contract to begin with. Might I suggest that you start doing some serious research into how options trading works, and never bet more than you can afford to lose PERIOD. You know kinda like going to Vegas.

If you are an experienced trader the answer you seek still comes back to.......it depends on where your starting position was/is, and what you are trying to accomplish with the contract. It will be different for each individual trade AND each individual trader and their risk comfort level.

I pretty much only trade condors or sometimes short verticals.  Its all risk defined.  My overall strategy is small trades, high probability, small profit on stocks with high implied volatility.  Its purely statistical and relies on very little analysis of the underlying assets outside of them not being an obvious dumpster fire.  This works for me because I currently do not have the proper skills to analyze companies from a financial perspective.

In this scenario I have a leg of a trade in the money at the start of expiration week.  Should I just close this trade and take a loss (but not complete loss)?  Or is it better to ride it out with the hope that the stock will return to a profitable level, and if not, will it work out over the long haul of this particular strategy?  How would I go about figuring out which method would be more profitable?

Based strictly on your comments I'm kind of at a loss as to exactly what you are trying to achieve. Options trading generally requires fairly large amounts of money. As the profits vary from small to less small it takes a lot to make much money. Aside from sophisticated options traders using OPM, I have rarely seen anyone do much more than do it as a hobby.

In b4 all the multimillionaires who have gotten rich day trading and options trading. If if was easy, WE WOULD ALL BE DOING IT.

You have to have pretty large size positions to have returns large enough to make it worthwhile.

No offense but reading your post as an outsider, here are some interesting thoughts. Not criticizing but you asked.

You are playing the game against professionals who have teams of people, vast knowledge & technology at their disposal. They play FULL TIME for money and are expecting to win. They've got to take the money from someone.

This is a zero sum game meaning, someone has to win and someone has to lose. It's almost like sitting at a poker table. There are only going to be a 2-3 winners, 2-3 big losers and a group of people that just get ground down over time.

What concerns me about your posts are the words you are using which shows your level of playing in the game:


"I ended up eating most of my maximum loss"
"I should expect to take losses
"relies on very little analysis"
"I currently do not have the proper skills to analyze companies from a financial perspective"
"hope that the stock will return to a profitable level"


No offense but if I was a professional trader, i'd be ecstatic when I would see these types of posts of amateurs "dabbling" in the game.

I'm not an expert, but since the replies so far have been along the lines of "You're a fool for trading options,"  I'll offer my $0.02.

I generally try to manage defined risk trades (like iron condors and call spreads) at 50% of max profit.  As soon as I get filled, I calculate what I need to buy it back at to get 50%, and enter a GTC order.  (I almost always sell premium instead of buying, so I'm buying to close.)

For undefined risk trades, like straddles and strangles, I'm happy with 25% due to the greater risk and higher premium received.

If it blows through my strikes with some time left, I just hang on and hope.  I almost never adjust a defined risk trade... I don't necessarily think it's a terrible idea in theory, but the few times I've tried it, I would have been better off leaving it alone.  Of course, undefined risk trades are different and you have to constantly be ready to adjust them.  

By "adjust" do you mean roll out or close?

I'm assuming you're referring to undefined risk trades?  I'm hesitant to try to give specific advice here, partially because I don't really feel qualified, and you can lose a lot of money with these types of option trades.  

I'm not necessarily trying to discourage you.  I think that everyone should be able to decide what his preferred risk/reward comfort zone is (unlike the SEC, which thinks that you aren't capable of making these decisions).  There are a lot of resources on the Internet that suggest specific strategies, if you're considering undefined risk trades.  My point in my previous post, I guess, is that you shouldn't just put these on, and maybe put in a GTC close order, then wait until near expiration to check on them; you have to monitor them closely IMO.

No, I mean defined risk trades like condors or credit spreads.  I really have no interest in selling naked options.  I doubt my broker would even allow me to do it.

Ah OK.  I guess the short answer is that I would do neither; if the trade doesn't hit my 50% profit target, I would typically leave it on, unmolested, until near expiration.  I have to admit, though, to not always being 100% mechanical on defined risk trades; I'll sometimes allow a small amount of wiggle room in that 50% target depending on how I feel about the chances of hitting it.  But if I'm not close, I'll leave it on until near expiration and hope for the best.

While "hoping for the best" may not seem like a sound strategy to some, consistently closing these type of trades at 50%, win or lose, has been demonstrated to my satisfaction to be a good strategy in the long run; certainly better than taking a WAG when to close your trade, and also better than holding to expiration (max profit goes up when holding to expiration, of course, but that's more than compensated for by the reduced win rate).