The 50 percent profit rule, tested
The rule says close a short option once you have captured half the credit, then put the capital back to work. Tested on one 42-day covered call across four price paths, it took less money than holding on every path that ended worthless, and on the path that lost money it never triggered. It is a profit-taking rule, not a stop.
This rule, and its stricter cousin at 80 percent, get repeated so often that almost nobody has watched what they do on a specific trade. So here is a specific trade.
The setup
Short one UBER October 17 $72.50 call against 100 shares, sold on September 5 for $153 with 42 days to run, at 32 percent implied volatility. Two exit rules and a control.
- The 50 percent rule: buy it back when it trades at half the credit, $0.76.
- The 80 percent rule: buy it back at 20 percent of the credit, $0.31.
- The control: hold to expiration.
Four price paths, each a straight line from $68.40 to somewhere, with implied volatility held at 32 the whole way. That last assumption is doing real work and gets its own paragraph at the bottom.
The results
| Path | 50 percent rule | 80 percent rule | Hold to expiry |
|---|---|---|---|
| Flat at $68.40 | day 21, $79 ($3.76/day) | day 32, $126 ($3.94/day) | $153 ($3.63/day) |
| Grinds up to $72.49 | day 39, $82 ($2.10/day) | at expiry, $153 | $153 ($3.63/day) |
| Falls to $64.00 | day 13, $81 ($6.26/day) | day 22, $124 ($5.63/day) | $153 ($3.63/day) |
| Runs to $78.00 | never fires | never fires | -$397 |
Read the last row first
On the only path that lost money, neither rule triggered.
Of course they did not. Both rules trigger on the option getting cheaper, and a short option gets cheaper when the trade is going your way. When UBER runs to $78 the call gets more expensive every day, so the price never comes down to $0.76 and the rule sits there silently while the position bleeds.
This is the thing people get wrong about profit-taking rules. They feel like risk management because they involve closing a position. They are not. A rule that can only fire on winners does nothing whatsoever about losers, and if you have one of these in place and no separate answer for the $78 path, you have a plan for the easy half of the problem.
Now the first three rows
All three end with the call expiring worthless, so holding captures the full $153 every time and both rules capture less. On raw dollars, holding wins clean.
Per day of exposure it is closer and more interesting. The 80 percent rule beats holding on the flat path, $3.94 a day against $3.63, because those last ten days are spent squeezing out the final $27 of a contract that is nearly dead. The 50 percent rule gets its best result on the falling path, $6.26 a day, where the option collapsed fast and let you out on day 13.
And on the grind higher, the 50 percent rule produced its worst outcome, $2.10 a day, firing on day 39 for less money than simply waiting three more days would have paid.
So the ranking flips depending on the path, which means anyone telling you one of these numbers is the right one has tested it on fewer paths than this page has.
What the rule is actually worth
Not the dollars. Three other things.
It shortens the exposure. Closing on day 21 rather than day 42 halves the calendar in which an earnings leak, a takeover or a bad Monday can reach you. The table prices the premium you gave up. It does not price the 21 days of tail risk you handed back.
It gets you out of the worst part of the curve. The last two weeks are when a short option's gamma is largest, which is when small moves in the stock produce sharp moves in your position. Cluster B works through why the seller feels those final days as danger rather than income.
It converts a decision into a rule. Underrated. Traders who close at 50 percent do it consistently. Traders who "watch it and decide" hold winners until they are losers, on average, and no backtest captures the cost of that.
The assumption doing the heavy lifting
Implied volatility was held at 32 percent on every path. In a real market it does not sit still, and the direction it moves changes these results.
An IV collapse after an earnings print makes the option cheap fast, so the 50 percent rule fires much earlier than the table suggests and looks brilliant. An IV expansion on a selloff makes the option expensive even as the stock falls in your favour, so the rule fires late or not at all on a trade that was working. Neither of those is exotic. Both happen most months.
The honest summary is that the 50 percent rule is a reasonable default for shortening exposure and a poor way to make more money, and that it leaves the important question, what you do on the $78 path, entirely unanswered.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
Should I close a short option at 50 percent profit?
It is a reasonable default, but not because it makes more money. On the worked example it collected less than holding on every path that ended worthless. What it buys is a shorter exposure window and an exit from the highest-gamma part of the trade.
Does the 50 percent rule protect me from losses?
No. The rule triggers when the option gets cheaper, which only happens when the trade is winning. On the path where the position lost $397 the trigger never fired, because the option was getting more expensive the whole way.
Is the 50 percent rule or the 80 percent rule better?
Neither wins consistently. On a flat stock the 80 percent version made more per day. On a fast decline the 50 percent version did. On a grind toward the strike, waiting beat both. The ranking depends on the path, which nobody knows in advance.
How does implied volatility change the answer?
Substantially. A volatility collapse makes the option cheap quickly and fires the rule early. A volatility expansion keeps the option expensive even when the stock is moving in your favour, and can stop the rule firing on a trade that is working.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Assignment and expiration for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.