Panic Sell-Off in Robinhood? Short Puts Down 2x? A Practical Options Self-Rescue Playbook

In 2025, Robinhood (HOOD) was a textbook bull run: it rallied from an intrayear low of $29 to a peak of $153, up more than 5x. On top of that, the crypto market was red-hot—Bitcoin broke above $120,000—which gave many people a kind of “crypto conviction,” and that conviction spilled over into Robinhood as well.

But after the New Year, as Bitcoin sold off sharply for multiple sessions in a row, HOOD also suffered a deep pullback. On February 5, the stock fell to a low of $71, marking a maximum drawdown of 54% from the peak.

Given HOOD’s extremely high implied volatility, short puts were a commonly used strategy for traders. Yet so far, after significant declines in share price, short puts positions are sitting on sizable mark-to-market losses.

In this article, we'll discuss: when a short put is losing money but you still have confidence in the stock—why you should “self-rescue,” and how to do it.

Two major sources of damage in a short put are:

The reason short puts often feel “less sensitive” to stock price movement and have relatively strong shock absorption is that we typically sell deep out-of-the-money (deep OTM) puts—so their delta is small.

However, if the stock keeps dropping, delta rises quickly. In other words, the lower the stock goes, the more damage you take for each additional $1 drop. Near the strike, delta is about 0.5. Once the option goes in-the-money, delta gradually moves toward 1—at which point the short put starts behaving almost like being long the stock unhedged.

A deep OTM short put decays quickly when the stock rises because time value shrinks. But if the stock moves the wrong way, the put moves towards in-the-money, then although you still earn a bit of time decay each day, the option’s value increases, so time value can effectively stop shrinking and even expand.

That makes it very hard to “wait for premium to melt away.” Once the option is in-the-money and has intrinsic value, the option price will never decay to zero. This completely goes against the original intention of running a short put strategy.

That’s why, when a short put shows a mark-to-market loss, you should define a stop-loss threshold. Once losses exceed that threshold, intervention becomes necessary. The stop-loss range varies by person, but a commonly used guideline is: when the premium increases to 1.5–2.0x of the original credit received.

The “self-rescue” approach for short puts is to roll down: close the existing position, and open a new short put at a lower strike and a later expiration.

Let's be clear first, cutting the mark-to-market loss and roll the position down is not to surrender. It’s a tactical shift in strategy, allowing investors to re-engage the market more effectively.

Besides, it must be said: if you are not confident in the stock and have no evidence that it could stop dropping in the near run, then after closing you can stay on the sidelines, or wait for a better moment to re-enter later. Here we just focus on the case where you close the old position and immediately open a new one.

The first questions are strike and expiration.

A common approach is an “equivalent shift”:

– If the stock dropped by X dollars, move the strike down by roughly X

– If time has passed by Y months, push the expiration out by roughly Y months

Example: An investor sold an $80 strike Robinhood put expiring in June when the stock was at $110 last November. By early February, the stock fell to $90, and a bit over two months have passed. The investor could roll the strike down by $20 (to $60) and push the expiration out by 2–3 months, for example to August.

This “equivalent shift” can make the new put’s delta and theta at entry look similar to the old position at entry.

There’s also another approach: use fundamentals to help choose the strike. For example, if the investor believes Robinhood’s fundamentals support a price around $50 (e.g., corresponding to 20x P/E), they might choose a strike below $50 (such as $45) for more protection. And to collect more premium, they might push the expiration further out, such as September.

Once strike and expiration are chosen, the key question becomes how many contracts. There are also two main methods:

If you sold N contracts before, you sell N contracts in the rolling.

Downside: if the stock returns to the prior level, the new position usually recovers only part of the original loss—often not enough to fully break even, let alone profit. The logic is straightforward: since the new option’s strike and maturity are “equivalently shifted,” the premium is roughly similar in nature; a move that made the old premium expand dramatically may only allow the new premium to contract partway.

Upside: you’re not adding new risk. In a bearish market environment, keeping risk contained and maintaining liquidity can be extremely important.

Meaning: based on the expanded premium (and the loss you’re sitting on), you calculate how many contracts of the new put you need so that if the stock returns, the premium contraction could offset and potentially fully recover the loss.

The risk is obvious: because contract count tends to increase, your exposure grows. If the stock keeps falling, your loss can accelerate even faster.

Using these two methods as baselines, investors can choose according to their real situation:

– If you think further downside is unlikely and want to recover quickly, you might be more aggressive than the “same dollar amount” method—but you must accept larger risk.

– If you think downside risk remains high but you don’t want to do nothing, you could roll into fewer contracts than before—more like a cautious, wait-and-see posture, mainly to avoid missing an extreme tail outcome.

All the cases above stay within the short put framework. But in extreme oversold conditions—especially if a V-shaped rebound is possible—the best weapon to recover losses is often not a short put, but rather an at-the-money or slightly out-of-the-money long call.

And if, based on valuation, you believe the stock has reached a true valuation floor and you’re bullish on its long-term upside, you might even use LEAPS calls to buy the dip directly. These are more aggressive, more volatile strategies, but they also come with much larger potential upside than short puts.

Recently many sectors have experienced sharp drawdowns, like softwares, where investors could use the self-rescue strategy to reduce losses and ease psychological stresses.