The 50% profit rule: compare different stock paths

A profit target can shorten exposure after a favorable move. It does not supply an exit rule for an adverse path.

By OptionsKing. Publisher and editorial methods.

Compare two profit targets with holding on the same four paths. The table measures the short option's result, not the shares-plus-call result. Read both dollars and time exposed, then identify what the rules fail to address when the option never gets cheaper.

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

Read the last row first

On the only path where the short option leg lost money, neither rule triggered. The combined covered call gained from the rising shares; the table does not include that stock result.

Of course they did not. Both rules trigger on the option getting cheaper, and a declining price benefits that short option leg, not necessarily the entire covered position. 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 profit target cannot cap losses that occur before it is reached, 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. The 50 percent rule captures less on all three. The 80 percent rule captures less on two and ties on the grind, where it never fires and simply rides to expiry. On raw dollars, holding is never beaten.

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

After a covered call is bought back, the account still holds stock unless it is sold separately. The target shortens option exposure, not necessarily total equity exposure. Re-entry would add another trade and costs, so a higher per-day option result is not a proven higher annual return.

Not the dollars. Three other things.

It shortens the exposure. Closing the call on day 21 rather than day 42 halves its remaining contractual exposure window; it does not remove stock exposure if the shares are retained. 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. A prewritten target can improve consistency, but that does not prove it outperforms discretionary management. Evaluate both the rule and exceptions against costs and the whole-position objective.

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.

Common questions

Sources

• OCC / Options Industry Council, Options Assignment FAQ
• OCC, Characteristics and Risks of Standardized Options

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

• The same decision, case by case
• What the last two weeks actually pay
• The answer the rule does not give

Do the math on your own trade

• Covered call calculator premium, break-even, static and if-called return, annualized.
• Annualized return calculator turn any credit and any holding period into a yearly rate.
• Roll analyzer is rolling this position actually worth it.

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.