TRIED & TRADED
← Field guide · exits

Exit 1 — the profit target

  • A profit target closes the trade once it has captured a stated fraction of the most it could ever make.
  • It is the most popular exit in retail options trading, and the one most often quoted without saying a percentage of what.

What it is

  • You state a fraction up front — half the credit, three quarters of it, whatever you choose.
  • You buy the position back when the market will let you close it for that price.
  • The trade ends early, usually well before expiry.
  • The capital comes back, which is the argument for it.

On a credit spread, in numbers

Take the specification this site uses on the bull put spread page: sell the 95 put, buy the 90 put, 45 days out, stock at $100. That prices at a $0.93 credit — $93 for one contract.

Target, as % of max profitYou buy it back forYou keepThat is this much of the maximum
25%$0.70$23a quarter
50%$0.47$46half
75%$0.23$70three quarters
100%$0.00 (expiry)$93all of it
  • The maximum is the credit. You cannot make more than what you were paid.
  • So “50% of max profit” and “50% of the credit” are the same instruction here.
  • On a debit spread they are not, because the maximum is the width minus what you paid, and the two numbers differ.

Every figure in that table is arithmetic from the specification above at 25% volatility and a 4% rate. None of it is a measured result.

The argument for it

  • The last of the profit is the slowest. Getting from half the credit to all of it can take most of the remaining days.
  • And it is the most dangerous. Those days are the ones where gamma is largest.
  • You are risking the whole spread to collect the tail of it. The remaining reward shrinks while the exposure doesn’t.
  • Closing early frees the capital to be used again, which raises the number of trades a year rather than the profit per trade.

The case for a profit target isn’t that it makes more per trade. It plainly makes less.

  • It is that it makes less, faster, with a smaller worst case.
  • Whether that trade-off is worth it depends on how often you can put the freed capital back to work.
  • Which is a measurable question, not a matter of opinion.

Where it bites

The percentage is meaningless without its base

  • Percentage of maximum profit — the standard reading, and the one above.
  • Percentage of the width — different number entirely.
  • Percentage return on the capital tied up — different again, and the one brokers show you.
  • Three defensible readings of the same sentence. State which one you mean.

It cannot be hit if the price never gets there

  • A target of 90% on a wide, illiquid spread may simply never fill.
  • The position then runs to expiry by default and you have quietly traded exit 4 instead.
  • A test that assumes the fill happened is measuring a strategy nobody could have traded.
The one that makes a backtest look better than life

If a test closes at the target using a price the market only printed later in the day, it is reading tomorrow’s paper. A profit target has to be checkable at the moment the rule says to check it — or the result belongs to a trader who could see the future.

Common questions

Is 50% the right profit target?

It is the most repeated one, which is not the same thing. It comes from popular options education rather than from anything this site has measured, and it is on the list to test.

Does a profit target improve the win rate?

Usually yes, and that is exactly why win rate is the wrong number to judge it on. Taking smaller wins more often raises the percentage that win while lowering what each one is worth.

Should the target change with days to expiry?

Many traders scale it — higher targets early, lower ones late. It is a reasonable idea and a testable one. It also doubles the number of settings you are choosing, which is its own risk.

What happens if the target and a time exit both fire?

Whichever you named first in the specification. If you named neither first, you have two strategies and no way to tell which one you traded.

How this shows up in our tests

No result is published on profit targets yet.

The exit ladder run will close one set of entries at 25%, 50% and 75% alongside the other exits, and score them on expectancy rather than win rate. Until then, every test article on this site names the target it used.

The hub

The seven ways
to exit

The question

Does closing at 50%
beat holding?

The mechanism

Gamma risk
near expiry