As a trader of my options strategy, there have to be a set of rules, and a set of trading laws that are meant to protect ourselves. Here we sill focus on the first and most important law, and then describe a few strategies that may be used in these situations to help protect or hedge in this occurrence. 
The first law of options trading is in relation to shorting of options. It is simple at 100% loss you take that loss. up to 150% loss if hedged fully but never more.
If you are caught with a vertical short and your short strike is bringing about 100% loss TAKE THAT 100% loss right there and then. At 80% loss you should be looking for an exit but at 100% loss you should be executing an exit without hesitation. Weather or not you exit the long leg of the vertical short all depends on the situation. 
Example you shorted xyz 150 puts at 1.00 vertical trough xyz 140 puts at .30. Even though your spread is .70 you want to pay attention to the short price of 1.00 and exit at 2.00
 What do we do before we get to 100% loss? We should always be mindful of strategies that can help buy us time, Here are 2 strategies I like to use and are important to understand if following my larger strategic trading.
strategy (a) Opposite vertical short of same money allocation. Usually this is in the form of an Iron Condor.
If you have a vertical short on puts lets say at 150 strike and the stock is at 165 but starts to move bellow 160, you can buy yourself time by shorting perhaps the 175 calls vertical. This way if you get sideways action you gain from premium loss and if we fall more then the loss on the puts, become somewhat offset by the gain in profits on the call short.  Despite this strategy, even if the losses are being offset equally you should then consider intent of 100% gain on the premium of the option the point to take the loss, or perhaps move the mental stop up to 150% since 100% is already hedged , but once that 150% is gained by the short option then that is the final point where U have to exit no matter what. Agin you can chose weather to exit or not to exit the long leg that is attached to the vertical spread.
strategy (b) Off balanced Vertical spread.
Another messure you can chose to make before you get to the 100% loss is to buy yourself time by doubling the contract amount of the long leg. This is something you should consider doing as soon as 50% gain in the short premium is seen. This created an of balanced vertical. so if you had 10 contracts of xyz puts short then once you have seen 50% gain in that premium you make make sure your still at 10 contracts on the puts short but you double the position to 20 contracts on the puts long. So if U have a continued fall hopefully the long position will help hedge the premium gains on the short position. Again you should still exit the short position at 100% loss but since you are hedged, at this point you can give yourself the up to 150% loss just like you did when shorting the other side to buy time. This strategy in particular can hedge theoretically better since the hedge works being 100% and has unlimited hedge. the reason why you still want to exit at the latest 150% gain in premium on the short is because we are not just trying to limit risk but also maximize profits.
strategy (c) both (a) and (b) at the same time
if you chose to both do an opposite vertical spread plus you chose to double your long leg contract amount of the losing vertical spread, then you are very aggressively turing a losing strategy around to become a further possible profit strategy and you are giving yourself a further 100% than any one of the 2 strategies can do on there own. The downside is that if you end up getting to that 100-150% loss point and you exit the losing short position then once you have done that the stock again shifts direction, then you are set up to lose even more.
The solution here is simple, if you get mentally stopped out and then you see that its again moving in the direction you originally wanted you can renter the short side maybe lower than where you took the loss but you can do it at 2 times the contract amount since you have twice the contract amount on the long side to make it a balanced vertical again but this time of greater overall size. This can be justified because you already have the short in the opposite side that you now want to protect. and now the opposite side will have to watch out for 100%c loss posebilety and consider weather it needs to make the adjustment of solution (b) make itself also off balanced by doubling the position of the long leg.
Now you can imagine how all of this can quickly elate to a log of money on both sides but they don't eat into margin because of the fact that one side is hedging the other.
Save this and understand this please because we are here talking of the MOST IMPORTANT TRADING LAW 
Posted in General Trading