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Module 4 Quiz — Managing the Trade

5 questions · study aid format (answers + rationales visible). Complete after Module 4.

Q1. When should you close a short put early for profit?

  1. When it hits 25% profit
  2. ✓ When it hits 50% profit
  3. Never — always let it expire to capture full premium
  4. Only when the underlying stock hits an ATH
50% profit rule. Capture the meaty part of decay, free the capital, redeploy. Diminishing returns per day after ~50%, plus rising gamma risk.

Q2. What is the FIRST question to ask when a short put moves significantly against you?

  1. "Should I roll this out and down?"
  2. "Should I close for a loss to free the capital?"
  3. ✓ "Has my thesis on this underlying company broken?"
  4. "Should I add more contracts to average down?"
If the thesis is broken (fundamental change in the business), close and move on. If the thesis is intact, then consider rolling or taking assignment.

Q3. Under what conditions is it acceptable to roll a losing put?

  1. ✓ Only if you can roll for a net credit AND the new strike is one you'd still be happy to own at
  2. Any time the trade moves against you — always roll to avoid assignment
  3. Only if the broker offers a "roll" order type
  4. Never — always take assignment on any losing put
Rolls that pay a debit are just prolonging bad trades. Rolls to strikes you don't want to own at are just pushing the problem. Both conditions must be met.

Q4. What is the "rolling forever" trap?

  1. ✓ Repeatedly rolling losing puts down and out on the same broken thesis, accumulating small credits while the underlying deteriorates
  2. Rolling a winning put for extra premium every week
  3. Never closing any position because you're greedy for more premium
  4. Rolling positions across brokers to avoid tax reporting
The perpetual roll on a broken thesis is how wheel traders quietly blow up. If you've rolled twice on the same trade, the market is telling you your thesis was wrong. Believe it.

Q5. Why is journaling every trade critical to long-term wheel success?

  1. The IRS requires trade journals
  2. Your broker doesn't record your trades
  3. ✓ Memory is a liar — patterns only emerge from written records, and you can't improve what you don't measure
  4. It's a legal requirement for options traders
Without a journal, you'll remember wins as skill and losses as bad luck. The journal cuts through self-deception and reveals which setups actually work for you.