The defense you can afford is decided the day you open the trade

You sold a put a few weeks ago. The stock has fallen through your strike, and expiration is getting close. You open the account to do something about it.

There are three things you can do. You can repair the position by rolling it, to a later expiration and, if needed, a lower strike. You can cut it with a plan, when the money a repair would tie up is better used somewhere else: close it and take the loss, or let it be assigned and own the shares. Or you can exit: close and walk away, when news about the business itself puts its survival in doubt.

In our own trading, repair is the choice that fits almost every case. But it comes with a condition that is easy to miss. There has to be room to make it, and that room is not created on the day you need it.

Room to roll into

The first kind of room is time. Say you want to roll for a credit, which means the new put brings in more than it costs to buy back the old one. For that you need a later expiration to roll into, and under our rules it has to expire before the company's next earnings report.

Now picture an account where every put expires in the same two weeks. When the market falls, the trouble does not arrive one stock at a time. Your other puts are on stocks that are falling too, and they all expire in the same few days. Every one of them needs a repair in the same week, and rolling them all forward only moves the whole cluster to the next date, where it can happen again. An account whose puts are spread across several expiration dates repairs one or two at a time, and each roll can go to a date that is not already crowded.

That is the honest reason for opening positions gradually, a few at a time and on different expiration dates, instead of all at once. It does not protect you on the first day; a shock is as likely then as on any other day. What it gives you is room to repair.

Room to grow

The second kind of room is size. A repair sometimes means making the position bigger for a while: replacing one put with more contracts at a lower strike. The extra contracts bring in enough premium to pay for buying back the old put, which is how the strike comes down. More contracts mean more shares you would have to buy if assigned, and usually a larger margin requirement: the money your broker requires you to keep in the account against the position.

That step only exists if you left unused room under your own limits when you opened the trade. If the position was opened as large as your limits allowed, the step is not there. Adding contracts then adds exposure to an account that is already full, and the repair itself becomes the problem.

This is why the limits we use sit well below what the broker would allow: the broker's line is where it starts closing positions for you, and a repair should never have to go near it. The room you leave at entry is also the most you can count on, because a falling market raises the margin requirement and uses some of it up.

The mistake to watch for is not the losing trade. It is adding contracts too early, or adding them to a position that is already at its limit.

What small enough looks like

Here is the arithmetic as an illustration, not a rule. A 50,000 dollar account sells one put at a 50 strike. If it is assigned, that is 100 shares at 50 dollars: 5,000 dollars, a tenth of the account. The stock then falls to 35, which is 30 percent below what was paid. The loss on the shares is 1,500 dollars, or 3 percent of the account, before the premium collected. Even a fall to zero would cost a tenth of the account, before the premium.

That is what we mean by a position sized so that it doesn't matter. Not a position you do not care about, but one whose worst realistic outcome the account can absorb and carry on from. It is what turns a defense into a choice instead of an emergency.

There is a sentence we keep coming back to: size the position as if you might still, somehow, be wrong. Because now and then, through no fault of your own, you will be. When that day comes, the room is either there or it is not. It was decided the day you opened the trade.