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Short Put Strike Tested: What Should You Do?
When a short-put strike is tested, the worst response is to improvise from the option P/L alone. Re-underwrite the stock and the portfolio first.
Tested does not mean automatically wrong
A strike being challenged is one possible path of a short put. The key question is whether the original ownership thesis, event assumptions and portfolio capacity still hold.
Re-underwrite the underlying
Ask whether the decline changes the business thesis or simply changes the market price. New fundamental information matters more than the fact that the option is showing a loss.
Re-underwrite the portfolio
Assignment can increase equity exposure, sector concentration and margin usage. A trade that is manageable in isolation can still be too large for the whole portfolio.
Closing can be the correct loss
If the thesis is broken or the position no longer fits the risk budget, closing crystallizes a loss but prevents a trading rule from becoming an ownership trap.
Assignment should be intentional
Accept assignment only when the stock obligation is still desired and affordable. Assignment should never be used merely to avoid recognizing an option loss.
Rolling creates a new obligation
A roll closes the current option and opens another. Evaluate the new strike, expiration and obligation as a fresh trade rather than assuming a credit makes the roll attractive.
Use a written options process
Define winner management, time exits, loser decisions, assignment capacity and portfolio limits before the trade is under pressure.
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When to Close · 50% vs. 80% · 21 DTE vs. Profit Target · Tested Strike · Roll vs. Assignment · Rolling for Credit · Early Assignment · Expiration Risk · When Not to Roll