Rolling an Options Trade Explained | Options Trading Concepts

[@johnjohn-kd7fl]

This is one of those videos where you realize you know way less than you thought you did. At least I know what I'm doing this weekend. Thanks for the info.

[@raulesteves5264]

I read a comment about the assumptions and benefits of rolling: rolling an option into the future allows for decreased max loss and increases the probability of profit (because time allows for a reversion to the profit side). The problem with rolling is that there has to be an assumption of a reversion to the OTM credit spreads. And when the price becomes too trending, then rolling becomes obsolete, and if that happens, your max loss increases. When do you know when to stop rolling?

[@MusicGodsNFT]

Hello there and thanks for the video. If you are open for critique I have a suggestion. When teaching/ explaining a concept regarding options please consider the audience and the possible/ probable lack of understanding of short selling and especially naked puts. It is exponentially easier to grasp the concept of buying covered calls to people who would look for this type of information. In other words, if someone has the approval for selling naked puts (which is level 5 clearance) the concept of rolling should be basic information. This is my opinion but perhaps others will vary. Wishing you well. 👍🏼

[@alondob]

Great explanation with excellent visuals!

[@thetacc7403]

We wonder how the Days till expiration affect the rollover price theoretically. Like which one of the scenarios below would be cheaper: To roll over a position with 40 DTE to 50 DTE (adding 10 days till expiration) or To roll over a position with only 1 DTE to 11 DTE (again adding 10 DTE)

[@scottallison1434]

I sell naked puts and when I have to roll the position I choose a lower strike price than my original trade. In your example you choose the same strike price when you roll into the future. Doesn’t it make more sense to lower the strike price as long as you’re still getting a net credit? Thanks Scott

[@tastyliveshow]

That's certainly another way to do it - that gives you more space to the downside, you just give up additional credit but also give up directional risk. I like your method as well, but for simplicity's sake went with the same strike for the example.

[@dontswin]

That's what I always do. I choose a lower strike when rolling, it seems as tho there is less of a chance the stock price will keep on collapsing thru and past your new strike you sold (chose) the 2nd time. Maybe it's just me but choosing a strike closer to where the current price is seems way more risky and gives your position no leeway.

[@ManjitSandhu]

Great video. Thanks.. Was wondering if you have a video on how to sell covered calls on a long term portfolio of stocks where i do not want to have then called away (capital gain tax) but want to make a little extra money by selling covered calls. Yes, I could go low delta (like say 10) but even that means that some of the stocks would get called away.

[@stocktawk]

Do you have a video about rolling contracts that you have purchased? Instead of sold..

[@MrJking1962]

I have been doing risk and profit analysis on pure options trading in my IRA for the last month. The low risk trades also have low profit. It equates to hundreds of trades and a 6% percent annual return on investment. I could save myself time by putting it in a stable fund. The higher risk trades seem more like gambling. One bad trade will erase 10 previous trades. I am an experienced long term trend trader who wants to minimize loss and capture more profit as a trend oscillates to its end. That is where options seem to fit for me. I guess in a margin account it could be 12% annual because I was using cash secured put selling on put condors. 12% is good. For an IRA I will stick to putting puts to get into a trend and selling covered calls to capture more. Its also easier to decide where I want to place my strike prices in line with the trend. Scratch this for now. My analysis did not consider leveraging my odds using theta. I was only looking at expiration.

[@tonyh1718]

How low is your low risk trades? I do weekly wheel trades and ive grinded 10% in under 6 months and my roi is awful

[@colinteoh3230]

Hello Tastytrade, For this particular case, how do you mitigate early assignment risk when rolling ITM puts.

[@tastyliveshow]

Colin, Just rolling in general will help mitigate risk - essentially, the more extrinsic value there is in an option, the less likely it is to get assigned. Therefore if we roll an option into the future, it adds more extrinsic value, and lowers the risk of assignment. Even if we get assigned, the risk profile doesn't change - just the buying power reduction does.

[@stiffsheet817]

So does it mean when you decide to get assigned you’d have higher cost average or is it still $4330?

[@Pathos312]

My question is, when would you want to roll an option? This assumes the option was correct and you're banking on it moving further into that direction, correct?

[@tastyliveshow]

Either or - your example is an offensive roll where you're trying to get more money for a continued move. This example in the video is a defensive roll where the stock price goes against you, where you may want to extend duration by rolling the short put out in time for a credit.

[@Pathos312]

@@tastyliveshow Gotcha, thank you for responding.

[@jaydenjohnson7486]

thank you j martin i had the same question. i had a call that is moving in my favorite & want to change the exp so i can bank more. wasnt sure when it closed if i would see some profit if the strike is up or if i was just doubling down my profits at the time of my roll.

[@Andrewbliss44]

Question: What is the best ( right time) time period before Expiration to Roll -over short Put? And which new Expiration ( maximum time period) should be chosen?

[@tastyliveshow]

We usually wait until a certain unwanted delta is realized, or if extrinsic value in our current option gets low, or if expiration draws near - we usually go to the next monthly cycle that is closest to 45 DTE, but it's really up to you!

[@garhoo1733]

Tasty trade studies have shown 21 DTE Days Until Expiration is the optimal time to roll

[@routerpete1674]

On TastyWorks platform, with the social aspects of it we're able to see what the members do, including you, Mike. I see a lot of rolls on there. Why? a) Why not put it OTM more and manage it less? b)Is it because you all try to hit ATM for max profits and as a result need to adjust more frequently? Thanks...

[@tastyliveshow]

It's typically OTM trades that move to being ATM or slightly ITM, and we're rolling to add more extrinsic value and time to the position. It's rare that we start ATM.

[@theotherguy6155]

So If you follow the tasty trade mechanics would you still buy back a put at 50% profit? or how would handle a rolled put? because if you buy back at 50% you're still locking in a loss. How do you handle this situation?

[@vfxhouse6499]

out of all your naked trades, what % of these trades would you say you roll vs hold till expiration? and are u usually rolling at 21dte? Also most importantly, if you have the cash do you find it favorable to take assignment on a naked put then selling calls on the shares vs rolling?

[@tastyliveshow]

It's hard to give a % but I don't hold many trades to expiration - I also don't take stock because it's not as efficient as holding the option, and stock has no extrinsic value, so I'd rather just roll the option if it's ITM and I can keep collecting extrinsic value rolling it. 21 DTE is more for undefined risk trades, and I stick to that to avoid gamma risk if I'm approaching that timeframe, but I can and do roll before that if something happens.

[@vfxhouse6499]

@@tastyliveshow awesome thx! I can see the advantage of not taking on the stock but 1.)what if there is a quick jump to deep ITM and you no longer can roll for a credit?? are you normally just closing out at a loss in this circumstance? 2.)what's the furthest out you would roll to achieve a credit? 60days too much? 3.) not a question but just checking to see if this is accurate? : Rolling out in time can keep the dream alive but it also can give the stock more time to plummet, in which case you can lose way more money but I guess that can happen anytime before or after a roll, and why you mention we have to have the same bullish outlook. the fact remains by rolling (for credit) you are lowering yr breakneven.

[@saderick52]

do you have a video teaching rolling for spreads?

[@vr1125]

Hi. Question: Won’t it be more advantageous to just let it expire in the money, buy 100 shares at 45 and then sell a cover call at the 50 strike? You may collect more in premium this way. Thanks

[@tastyliveshow]

You certainly could! That is a popular strategy, it just takes a lot of capital to execute, since 100 shares requires much more capital than a short put.

[@SuicidelG]

@@tastyliveshow I'm pretty sure most brokers won't let you sell naked puts and you have to be cash covered anyways...

[@yaakovibnrussell6475]

@@SuicidelG o yes plenty real brokers do. Also, even with CSP's you could end up buying on margin and a downturn in your portfolio could get you in a margin call.

[@cashbull59]

essentially the government does that to our money, always pushing the retirement benefits further into the future, thanks for the video!

[@rogjerr]

When rolling, what effect does altering the duration have on the trade? e.g Rolling every week, then switch to rolling a month? Is this good/bad? Any optimal way to do rolls? Also, at what point should we stop the trade and accept a loss, I mean when should we give up (if needed) as we can't roll forever?

[@tastyliveshow]

If I can't roll forever because the product is too big or I don't want to, I typically close at 2x credit received as a stop loss. If I collect $1.00, that means closing at a $2.00 net loss. If I'm rolling, I'm rolling month to month since liquidity is typically highest in the monthly cycles. We usually roll around 21DTE to get back to the 45 DTE cycle in the next month. If I'm trading defined risk, I can't roll a credit spread for a credit if it's ITM, so if it's about to go ITM I roll at that point regardless of DTE for the most part. Totally up to you though! Just search for certain topics or keywords on www.tastytrade.com/tt/search You'll find plenty of content on everything.

[@ricknogan413]

I have a question for you - What is the advantage of rolling versus letting your contract expire and writing a new one? Is there lower fees by rolling versus doing a new contract? Is it ease of use and it takes less time? Example. In June, AAPL is trading at $100, you own a $150 call expiring in June. If you “keep the dream alive” by rolling into a $150 Oct call, would there be any difference vs letting your June contract expire and purchasing the $150 Oct call as a new contract?

[@bluesky5587]

I was wondering this also…rolling is a wrapped buy to close sell to open …but it seems u sell at bid instead of the ask ..same with position I…. Why not close it yourself and then sell to open new position….. I could use limit orders and get better pricing.

[@yaakovibnrussell6475]

After 9 months, you may already have realized but the point is you usually don't want (or can't afford) assignment. realize that not all brokers make you cash secure your puts...

[@yaakovibnrussell6475]

I also note you are talking about lottery ticket buying (your example long call at $150). You can't roll out a long position without coughing up more dough. The video discusses selling the options and doing the roll because (at least in the short term) the trade went the wrong direction on you and you are in the crosshairs to be assigned if you let it expire.

[@yaakovibnrussell6475]

If you are buying options, yes, you would always wait for them to expire because It could bank at the last minute.

[@glencaple3888]

@@yaakovibnrussell6475 If you buy an otm put option, and it expires itm, the brokerage will assign you the # of shares that you contracted for. So you will now be short the underlying asset. I don't know how a buyer of an option can be assigned anything because the definition of buying an option states that the buyer has the RIGHT, not the obligation. So when you are assigned the asset(s), you now have an obligation. But it's the brokerage's choice. Not yours. ???

[@MakingYouCASH]

When I roll, what happens to buying power????? Don't I need more buying power when I roll then I needed for the initial trade? Also, I'm referring to a losing options trade. Please help.

[@tastyliveshow]

Not necessarily - some may require a bit more, some a bit less, but if we're just moving our risk from one month to the next, the buying power typically remains roughly the same.

[@edmandell3064]

Great Video. Couldn't you roll up or down ? Also, does it make sense from time to time to roll the direction? for example: closing a put then rolling out a call.

[@defcon2544]

Can rolling a covered call trigger a wash sale? Specifically, can you roll over a weekly covered call to the next week and not trigger a wash sale? Or do you have to roll forward at least a month?

[@HomeOwnerTools]

Hello, thanks for this helpful video! I’m new to options so I hope this isn’t too dumb: so if I sold the 45 put and closed the position and opened up a new position for the next month, the broker uses the same original contract you had on? I guess what I’m trying to ask is that the 45 strike is the same contract they use, but expiration length of time is simply “tacked” on when you buy more time? So the broker recognizes when a roll occurred on the same strike? And does it have to be the same work order or can it be done a few minutes later or hours later before close of day?Options drive me nuts but I think I’m getting it. Thanks!

[@tastyliveshow]

Hello! Not a stupid question, but no need to make it so complex - it's simply closing one contract and opening another one. Don't think about it as the brokerage re-writing the current contract. Just consider the contract you're closing closed, and the new contract is a brand new open trade. That is how it will appear on your platform. The reason why we can roll for a credit is because there is more extrinsic value in the next month we're rolling to compared to the current month, so we can extend duration, collect more premium and give ourselves more time to be correct.

[@tastyliveshow]

There is no difference between rolling in one transaction, and closing your current trade and opening a new one a few minutes later - they're just separate transactions and the pricing may be different.

[@baba10ye]

@@tastyliveshow going does the brokerage show the 1.75 or 5.75 on the price limit?

[@drjems]

Thank you Mike...its awesome

[@antt9818]

Can you roll the option on the day of expiry?

[@tastyliveshow]

Yep - you can roll at any time the market is open.

[@robertc.benson6361]

Question, if initially roll a put to the next month when my strike is hit. When and were do I do the next rolls if need be?

[@thehairgeneer5842]

I have been looking at selling naked puts at a strike at or below 20% of the current stock price on Strong underlines ($50+) looking to receive premiums at about 3-8% roe (from maintenance) 30day expiration. One thing that confuses me is what protections are in place if a underline gaps down after hours past my strike price? Say the stock is trading at $60.00 and my strike is $48.00 and I have a stop loss at $50.00, if the underline gaps down from $60 to say $47.00 after hours my stop loss will not be executed in time, nor would I be able to roll my position fast enough correct? I dont mind taking a loss on trades at say 2x what I received on premium, but with wild market swings this is a major risk with naked puts....would you agree? Thanks in advance...

[@tastyliveshow]

That's correct - there is no protection in place since the market would be closed - one thing I'd consider is buying an option or a few options for a few pennies far OTM - even if they don't go ITM, they'll still explode on a massive selloff like that and it would protect against the expansion in extrinsic value / intrinsic value in the short option. Either way, if you want to be fully protected on a short put you may be better off with a spread. Even if you want to take the shares, you can still sell out of the long put and retain that hedge if you wanted to convert back to an ITM short put to get the shares. Totally up to you but I hope this helps!

[@kavinguo7640]

Thanks for the video. I'm new to Option trading, is there a way to roll a long call option?

[@tastyliveshow]

Sure - same concept just the opposite transaction. You'd be selling your long call at X expiration and buying a new call at a further expiration - this would cost a debit, which means your breakeven is worse, and your max loss increases, but you would be increasing time to be right.

[@wandabrowne8313]

@@tastyliveshow thanks

[@stephensawyer2511]

I'm currently down 60% on a call option with 5 total contracts and a total cost of $378. If I roll them over at the same strike price at a later date then I will receive a $500 credit. How does that work?

[@christendenise220]

For some reason this is my one question I can't seem to get a straight answer to. I sold a put for $25 premium, the next day the option was profitable by $14 so I bought to close the position. Did I keep the $25 and the $14? Or did I forgo the $25 to only make $14? Or did I only make the difference between the two contracts? So confusing, thanks....

[@dontswin]

I think you only gained the $14 because you only gained slightly over 50% of the entire $25 "potential" profit{you closed the position, so that was the end of it). Had you waited until it was going to expire you would gain a higher % so long as the stock price IS STILL ABOVE the strike price. Remember, selling puts is a credit to your account in the beginning but you don't really get the entire amount until the expiration day or only a % of the credit(over the duration of you holding that sold put) if you decide to close it( prior to the expiration day). At least that's how I try to think of it.

[@SouravGhoshkulti]

it doesn't need extra margin/fund during rollover? Because I am taking Loss & then my funds also get reduced. So for selling next Expiry CALL of same Premium (i.e. getting Credit) I need additional funds in a/c. Am I right ?

[@tastyliveshow]

You do not - your account dropping from the loss has already happened - in some cases your buying power required to place the trade will actually decrease, if you're collecting a credit during the roll as that offsets your risk by that amount. If you move the strike closer to the stock price that could that increase your buying power required, but sticking to the same strike typically does not.

[@vrlab5660]

Can we roll at different strike price? for instance lower than the initial put $45? something like selling $35 put? why does it have to be same strike price?

[@michaelgreen6974]

It doesn't have to be same K. If my short put is deep ITM I look for one less ITM that will still net premium. Taking assignment at the lower K makes it easier to sell good calls against resulting position.

[@drrajesh4300]

Hello.. in case of buying a OTM call option and the trend is reversing at the expiry,can I roll it to the near month..if so,how much I lose and any extra buying power should I need.. kindly let me know

[@tastyliveshow]

You pay for options up front, so any roll would be based on that value. You would collect a bit back by removing time value, but you'd be putting yourself in a higher probability situation to lose the full value of the new option.

[@MrAUro-hm7ew]

If im already on the last trade for PDT, does Rolling will be accounted as one trade? i need to roll my position but im already at 3 Day trade counter. thanks in advance :)

[@sirajelsamra8170]

Mike, You talking about making a losing trade on the .35 delta vs the .6 delta. you didnt go over that the expring trade is probably at .98 delta at the time that you're rolling...

[@AD-md5uk]

So is this the same for put/call credit spreads when you roll for a credit you 'reduce cost basis which reduces max loss' thanks.

[@tastyliveshow]

Yes - if you collect more credit, you reduce max loss because that new credit offsets risk.

[@surajsheshadri]

How to roll spreads.. its not same as naked options from my experience

[@Sodr7]

If someone purchased the contract and I roll it and open a new one, how does that affect the buyer of the contract. Is there zero extrinsic value on that contract and they are done with it?

[@tastyliveshow]

Nope - their position would still be active - there is never a scenario where you and someone else are in the same position - it's a fluid market.

[@thenothingchannel457]

Hi does this mean the max profit for these series of roll is $1.70? And i can achieve breakeven if i close the new short put @ $3.35 = $5.05-$1.70

[@tastyliveshow]

Yes it is, if the new put expires OTM, the overall profit would be $1.70 and you'd wipe out the realized loss. Breakeven is achieved if the put is BOUGHT BACK for $1.70, which would mean on your platform you'd actually see a $4.05 "profit" on the new option. If you collect $1.70, you need to buy back the option for $1.70 to breakeven. Buying it back at $3.35 would realize a $1.65 loss. I talk about this at 8:00

[@alexlu713]

Does rolling a covered call indefinitely make sense if I don't want to the contract to be exercised? For example, I own 100 shares of XYZ at $50 and sold a contract of CALL at strike price of $55. Before the contract expires, XYZ jumps to $57 a share, does it make sense to roll the covered call at a monthly basis until it return under $55? I guess the worse case is it never returns to under $55 and my max gain would be capped at $5 + whatever many rolling credits I receive, correct? Thanks.

[@MWAHAHAHAHA414]

That’s my exact scenario now on my first options trade. As long as I can roll it out and receive a credit, I’m giving the stock time to maybe move back below the strike and I keep all the premiums and the shares. Is my thinking correct? Now if stock keeps running and is away above strike, at some point you may have to just throw in the towel and lose your shares.

[@adventures1670]

is rolling an option contract considered a taxable event or is it when you close the position?

[@theotherguy6155]

yes, any realized gain or loss is taxable

[@jaysant6958]

So like if you can just keep rolling naked options forever until you're right, what exactly is the risk or why doesn't everyone do that? Why ever settle for a loss?

[@tastyliveshow]

Mainly because people are uncomfortable with losses, or have an assumption that has changed. There is no guarantee that a stock will recover, but historically speaking, the stock market as a whole has recovered from the crashes it's endured.

[@PardeepKumar-tc3ws]

Can you please explain how Max Loss $4400 is calculated? As upto my understanding it is called that loss in short position can be unlimited because firstly we are selling the option and in future we don't upto what extent the price can rise, so theoretically its said that loss can be unlimited

[@tastyliveshow]

That is true for selling call options - an underlying has no cap to the upside, so loss can truly be unlimited. With selling a put, however, an underlying cannot go below $0.00 in price, so that is where our max loss would be. If I sell a 45 put, I am selling the right to someone else to sell their shares to me at the $45.00 per share. A put contract has the theoretical equivalent of 100 shares of stock, so that is $4,500. However, I sold the put contract for $1.00 per share or $100, so my max loss is only $4,400.

[@PardeepKumar-tc3ws]

got it, thx

[@promitbanerjee2623]

PLEASE DO CORRECT ME IF I AM WRONG, THE SCENARIO AFTER THE OCT PUT HAS BEEN SOLD IS 1.43.30 IS THE BREAKEVEN. 2. BELOW 43.30 IT IS ALL LOSS. 3. IF THE STOCK STAYS ABOVE 45, WE GET TO KEEP THE CREDIT RECEIVED, I.E 1.70 (LOSSES aDJUSTED). pLEASE DO rEPLY.

[@Juju-ch5it]

If you roll the position and it doesn't go the way you were betting, do you end up losing double the money? $4400 and $4330 for a loss of $8730? Didn't completely understand that part. THANKS!

[@tastyliveshow]

William, You don't - you actually reduce cost basis which reduces max loss. In the example, my original break even point was $4400 from the original put I sold: 45 strike, $1.00 credit = 44.00 breakeven When I rolled the position, I BOUGHT back the losing put for $5.05 in SEP, and sold a new option in OCT for $5.75. I only have one short put at this time, not two. Rolling is just closing the current option and opening a new one. The intrinsic value is the same at 5.00 in both options, so I'm netting a 70 cent credit in extrinsic value. That 70 cent net credit is used to lower my breakeven from 44.00 to 43.30. Even if the stock goes bankrupt, I only have one short put, and would have collected $1.70 in net credit ($1.00 originally, $0.70 roll credit), which would put me at a loss of $4330 since my strike is at 45.

[@Juju-ch5it]

+tastytrade Thank you! Such a helpful network.

[@sanbetski]

when you roll a naked put and incur realized loss, can you use that loss for tax purposes or will that be a wash sale? thanks!

[@tastyliveshow]

Good question! Unfortunately, I don't have that answer as it may depend on the timeframe, etc. I would reach out to a tax professional for an answer on that one.

[@highdesert9]

If an option contract can be exercised at any point during the life of the contract and the stock price falls below the strike price why wouldn’t that contract be Exercised by the contract holder For a profit. In the case of your example five dollars per share?

[@tastyliveshow]

Because that option has extrinsic value. If you exercise an option and turn it into stock, you burn that extrinsic value. Most traders just SELL out of their long options to retain the extrinsic value. which means there is no assignment in the short position. Assignment is rare as long as there is extrinsic value in the option, even if it is deep ITM.

[@highdesert9]

tastytrade ok I get it thanks

[@kl8922]

Whew, I can see the risks with rolling over the naked puts in that case. So I sell my call at $1 per contract and have to buy back at $5.05 per contract, which is already a hefty loss of $4.05 per contract, and then I have to gamble with a lesser probability at 35% by selling an IN THE MONEY put with the prospect of believing that this stock will head back up. Say that next month, your "directional assumption" is wrong and your stock goes to $35. Will I roll over AGAIN by buying back what I sold for possibly $10 per contract and roll out by selling an even higher price of $11 per contract? It seems to me I am in pretty deep sh1t at this point.

[@tastyliveshow]

At some point we may consider restructuring the trade - if we're not collecting too much in extrinsic value then the trade is very directional - of course trades can continue to go against us resulting in big losses, but the idea here is that if we get two sided markets and we continue to chip away at our cost basis and have SOME cooperation with the stock, we can end up in the green eventually by rolling as opposed to closing the trade for a loss in the first expiration.

[@hsimons181]

too much waffling doesnt get to the point , makes it seem like trading is difficult

[@jeffreysmith6873]

why not close and open separately? Instead of rolling? What is the differnece..?

[@BKPS3]

If you are a good trader you will probably go better doing it separately. But the risk is the movement in price of the new exp. leg (with could lead to a better or a worse transaction).

[@jischkebd]

Do you ever roll winning trades? I've noticed that sometimes my P/L will excede my max gain and if I try to close it it will show me a credit price.

[@davidlight5156]

Someone help me figure this at... I have 3 450 nov calls. should I roll 1 over? I'm not going to sleep until I get an answer.

[@dontswin]

@@davidlight5156 You've got to very tired by now, LOL!

[@MrJking1962]

Is this a form of doubling down?

[@tastyliveshow]

It is not - rolling is closing the current option and opening a new one in a new expiration, so I'm just moving the trade out in time here. Not doubling down in terms of contracts, but increasing the time I am in the trade.

[@HassMak86]

There is absolutely no difference or advantage in rolling versus selling your current call position and buying a new position. I see no reason to do a call, and no one can give me one either.

[@kbram7363]

Should have just rolled a naked call instead of rolling for credit.

[@changjoe01]

In the spot market, this is holding onto losers.

[@jayti6828]

This roll over thing is very confusing. 🤔😑😮‍💨

[@annihilationHaven]

Very good to know, however it is useless for me as my broker doesn't allow me to sell naked puts.

[@aristrudel8017]

So this is what the kids these days mean when they talk about "rolling"

[@teli4181]

They see me rollin' They hatin'

[@jamisonmunn9215]

Dreaming is not a valid investment strategy.

[@bsdgffishtuna5186]

why start with a naked put. Why not a basic call? a buy. way simpler for teaching.

[@tastyliveshow]

Only because rolling a long call out in time costs a debit, which makes breakevens worse, net cost higher etc. It's the complete opposite of how short premium improves these numbers.

[@earthlastdaybiblechannel]

led zeppelin