Options Trading During Circuit Breakers and Limit Moves: What You Need to Know
On March 9, 2020, the S&P 500 fell 7% within minutes of the open, triggering a Level 1 circuit breaker and halting all trading for 15 minutes. Three days later, it happened again. During these events, options traders faced frozen positions, blown-out spreads, and execution challenges that many had never anticipated.
How Circuit Breakers Work
The NYSE and all US exchanges use market-wide circuit breakers based on the S&P 500's decline from the previous day's close:
| Level | Trigger | Action |
Level 1 and 2 halts do not apply if triggered after 3:25 PM ET. Level 3 is absolute — trading stops regardless of time.
Individual stocks can also be halted via Limit Up-Limit Down (LULD) rules, which pause trading for 5 minutes when a stock moves more than a certain percentage within a rolling 5-minute window.
What Happens to Options During a Market Halt
Trading stops completely. You cannot buy, sell, or exercise options while trading is halted. Open orders are not executed. This means you cannot close, adjust, or hedge your positions during the halt.
Prices become stale. The last traded price before the halt may not reflect the true value of your options. When trading resumes, prices can gap significantly — your position's value could jump or plummet from the pre-halt level.
Implied volatility explodes. After a halt, when trading resumes, IV across all strikes and expirations surges. This inflates option premiums and can cause spreads that were narrow pre-halt to become extremely wide. Bid-ask spreads on options can widen to $1-$5 or more.
Assignment risk increases. If you have short option positions that are in-the-money during a halt, you can be assigned even though you couldn't manage the position during the halt. This is especially relevant for short puts during a crash.
Specific Impacts on Options Strategies
Credit Spreads
A credit spread's theoretical max loss is the width minus credit. During a circuit breaker event, the actual loss can temporarily exceed this if your short leg is assigned but your long leg isn't executed due to the halt. This resolves during normal settlement, but the margin impact can cause short-term buying power issues.
Iron Condors
Both sides can be tested simultaneously if a halt occurs during a volatile gap followed by a reversal. More commonly, the put side gets crushed during a crash halt, while the call side may briefly provide some relief.
Naked Options
Naked short options during a circuit breaker event are where accounts get destroyed. A naked SPY put during a 15% market crash can generate losses multiple times larger than the margin held against it. The halt prevents any management, and when trading resumes, the fill price to close can be far worse than the theoretical value.
Long Options
If you're long puts during a circuit breaker crash, you're in the best position possible — but you still can't sell during the halt. When trading resumes, the extreme IV spike may actually make your puts worth more than their intrinsic value, which is an excellent time to close.
Pre-Crash Preparation
You can't predict circuit breaker events, but you can prepare:
1. Size for the worst case. Assume that during a crash, all your correlated positions hit max loss simultaneously, and you can't manage any of them. If that scenario doesn't blow up your account, you're properly sized.
2. Use defined-risk strategies. Credit spreads and iron condors have a hard ceiling on losses. Naked options do not. During a circuit breaker event, the difference between defined and undefined risk becomes painfully real.
3. Maintain cash reserves. After a halt, your buying power may be temporarily reduced due to unrealized losses and expanded margin requirements. Having 40-50% of your account in cash provides buffer.
4. Set GTC closing orders. Place good-til-canceled orders to close your positions at target profit levels. If the market gaps in your favor after a halt and these orders are in the book, they'll execute without requiring your manual intervention.
During a Halt: What to Do
Do nothing. You literally can't trade during a halt. Use the time to assess your positions, check your margin situation, and plan your actions for when trading resumes.
Don't panic. The 15-minute halt is designed to let emotions cool. Use it for that purpose. Evaluate your positions rationally rather than reacting to the shock of the moment.
Check your broker. Some brokers' platforms crash during extreme events due to traffic. Know your broker's phone number for placing orders if the app or website fails.
After the Halt: First Actions
When trading resumes after a circuit breaker:
OptionsPilot helps you monitor your positions and their risk metrics continuously, so when extreme events occur, you have a clear picture of where you stand and which positions need attention first.