Exit strategy — when to take profit
The most important rule
Profit isn't real until you've locked it in. A position that was +50% can become -30% within a single week. Exit (closing out / taking profit) strategy — is a plan for WHEN and HOW to take profit or limit a loss.
Why do you need an exit plan BEFORE you start?
Most investors have a plan for WHAT to buy, but not WHEN to sell. This leads to two mistakes:
| Mistake | What happens | Reason |
|---|---|---|
| Taking profit too early | You sell after +10%, the price goes on to +200% | Fear of losing the gain |
| Taking profit too late | The price returns to the start, the profit evaporates | Greed — "it'll keep rising" |
Solution: set the rules IN ADVANCE and stick to them.
Profit-taking rules
Staged profit-taking (profit-taking — realizing gains in stages)
Instead of selling everything at once — take profit in stages:
| Price change | Action | % of portfolio |
|---|---|---|
| +25% | First take | 10% |
| +50% | Second take | 15% |
| +100% (2x) | Third take | 20% |
| +200% (3x) | Fourth take | 25% |
Why in stages?
If the price climbs all the way to +200% — you've already taken profit several times. If the price falls back after +50% — you still hold part of the gain. The portion you took stays realized — a later price drop no longer affects it.
When to close an LP position?
An LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → position needs active management. Here's when it's time to close or rebalance:
1. The price left the range
If the current price has moved outside your LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → range:
- Fees stop being generated — the position is inefficient
- Action: close and open a new range OR wait for the price to return
2. APR dropped below breakeven
| Metric | Value |
|---|---|
| Your LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → APRAPRAnnual Percentage Rate — the annual interest rate WITHOUT compounding. 10% APR = +10% per year.Read the lesson → | Current |
| BreakevenBreakevenThe breakeven point — the price at which a position is neither profitable nor at a loss.Read the lesson → APRAPRAnnual Percentage Rate — the annual interest rate WITHOUT compounding. 10% APR = +10% per year.Read the lesson → | (theta + debt cost) × 365 / LP capital |
| If LP APR < Breakeven | The position costs more than it earns |
Action: close the LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson →, move the capital into collateral, or wait for a better moment.
3. Large impermanent loss
If IL exceeds the fees collected:
- The position generates a loss even including fees
- Action: close, re-evaluate the range, or wait for the price to stabilize
When to close options before expiry?
Long Put (insurance)
| Situation | Action | Why |
|---|---|---|
| 30 days left until expiry | Roll — sell the old one, buy a new 120d | ThetaThetaAn option's change in value from the passage of time. Negative for the buyer (a cost), positive for the seller (income).Read the lesson → accelerates in the final days |
| The price dropped sharply | Close for a profit | PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → value has increased — lock it in |
| IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → rose sharply | Consider selling | VegaVegaAn option's sensitivity to volatility (IV). High vega means the option price depends heavily on IV.Read the lesson → gain — the put's price has risen |
Short Put (part of a put spread)
| Situation | Action | Why |
|---|---|---|
| The price is approaching the strike | Close — buy back the short put | Protection from assignment |
| 30 days left, value is small | Let it expire | No point paying to close it |
Short Call (covered call)
| Situation | Action | Why |
|---|---|---|
| The price is approaching the strike | Don't roll — let assignment happen | Selling at 2x the current price = a good outcome |
| Price far from the strike, 14d left | Let it expire | Value ~$0 — nothing to close |
Portfolio rebalancing triggers
Rebalancing rules
Rebalancing (restoring the layers' proportions) — is restoring the proportions of the portfolio's components. Done when the proportions drift from the plan. Covered in more depth in lesson 6-6.
Rebalancing triggers
"The price rose 3x — now what?" scenario
A practical example: SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → from $80 to $240 (+200%)
Take part of the profit
Sell 20-25% of your collateral SOL for USDC. This is your "safe" — profit nobody can take away.
Move the LP range up
The old $64-$88 range is no longer relevant. Close it and open a new one, e.g. $180-$240.
Roll the options up
Long Put: a new strike closer to the current price (e.g. $200). Short Call: raise the strike (e.g. $400).
Redistribute collateral
The extra USDC from taking profit → add to collateral OR withdraw to a CEX/bank.
Update your LTV
After the price rise, LTV drops. You can borrow more USDC for the LP position or simply hold more safely.
Psychology: emotion vs discipline
FOMO (Fear Of Missing Out)
"The price is rising — I can't sell, it'll keep going up!"
How to recognize and handle it: nobody knows if it will keep rising. If you've already made +100% — that's an excellent result. Your staged rule already lets you take part of the profit and leave the rest to keep growing. You're not missing out on anything — you're managing the position.
FUD (Fear, Uncertainty, Doubt)
"The price dropped 10% — should I sell everything?"
How to recognize and handle it: a 10% swing in the crypto market is normal. When your LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 71%+ triggers liquidation.Read the lesson → is safe and the options are doing their job — the plan works by itself. You recognize this is an ordinary swing, not a signal, and you stick to the plan.
Rules of discipline
- Set the rules before you trade — not in the heat of emotion
- Keep a journal — why you made each decision
- Follow the plan, not your emotions — the plan was made in a calm state
- Accept losses — not every position will be profitable
With these rules it becomes possible to manage the position coldly even during the biggest moves — it's not the market dictating your decisions, but the plan you wrote down in advance.
The golden rule
Better to take profit too early and regret that you "could have gotten more" than to wait and watch the profit turn into a loss.
Exit checklist
Before taking any exit action, go through this list:
| # | Question | Answer |
|---|---|---|
| 1 | What's the current LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 71%+ triggers liquidation.Read the lesson →? | __ % |
| 2 | Is the LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → range still active? | Yes / No |
| 3 | Is LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → APRAPRAnnual Percentage Rate — the annual interest rate WITHOUT compounding. 10% APR = +10% per year.Read the lesson → > breakeven APRAPRAnnual Percentage Rate — the annual interest rate WITHOUT compounding. 10% APR = +10% per year.Read the lesson →? | Yes / No |
| 4 | How many days until options expiry? | __ d. |
| 5 | Has the price hit a profit-taking trigger? | Yes / No |
| 6 | Is the action according to the plan, or according to emotion? | Plan / Emotion |
| 7 | What happens if I do nothing for 24h? | __ |
If the answer to #6 is "Emotion" — DON'T decide today. Come back tomorrow.
Summary
- Build your exit plan BEFORE you start — not in the heat of emotion
- Take profit in stages — +25%, +50%, +100%, +200%
- Close the LP when: price out of range, APRAPRAnnual Percentage Rate — the annual interest rate WITHOUT compounding. 10% APR = +10% per year.Read the lesson → < breakeven, IL > fees
- Roll options with 30 days left (PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →), let expire (CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson →)
- Rebalance when LTVLTVLoan-to-Value — the ratio of debt to collateral value. LTV 30% is considered safe. LTV 71%+ triggers liquidation.Read the lesson →, LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → share, or delta drift
- Discipline > greed — the plan was made while calm
An exit plan made in the heat of emotion isn't a plan. This is a paper exercise — write down your rules now, while the market is calm (~20 min, no trades).
The golden rule: if the action comes from emotion (greed or fear) — don't decide today, come back tomorrow. Checklist question #6 checks this for you.
This is learning, not investing — use only small amounts you treat as tuition.
You just built a written exit plan with a profit-taking table, LP and options rules, and a checklist — most market participants have a plan for what to buy, but not for when to sell.