The Power of Rolling Your Options
Rolling an option means closing an existing option position and opening a similar one with a later expiration, a different strike, or both, usually in a single order. Traders roll to extend a trade that needs more time, to collect more premium on a covered call or short put (rolling out and often up or down), or to avoid assignment. A roll is two trades, so it can lock in a loss on the closed leg and it adds commissions and new risk on the new leg. This article is educational, not investment advice.
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What is Option Rolling?
Option rolling replaces a position in one expiration with a similar position in a later one. Option sellers often roll to keep collecting time decay (theta); buyers roll to give a trade more time. Rolling also lets you reset the strike price.
Rollover Benefits
Rolling your option gives you the chance to manage risk and improve returns at the same time. Rolling offers flexibility and freedom to adjust and rebalance your position to capitalize on market movements. It also allows you to leverage the power of options to take advantage of shorter term market movements, without the long-term commitment.
Adjusting Options
When you roll your options, you adjust your exposure to risk. You can move the strike closer to or further from the stock price, or maintain exposure over a longer period of time. With a wide variety of options available, you can use volatility and movement in the financial markets to improve your returns.
Using Financial Leverage
Options offer the opportunity to use financial leverage, and the power to take advantage of short-term price movements. Option Rolling helps you to leverage the power of options to take advantage of those short-term movements, without the long-term commitment. This allows you to gain more out of market movements, without tying up capital for the long-run.
MarketXLS
MarketXLS helps you compare the current and new contracts before rolling: =OptionSymbol() builds each contract symbol, =QM_Last(), =Bid(), and =Ask() price them, and =QM_GetOptionChain() shows the strikes and expirations available. The net credit or debit of the roll is the price of the new option minus the cost to close the old one.
Relevant blogs that you can read to learn more about the topic
Exploring the Risk/Reward of Strangle Options Trading
Manage And Track Short Call Options (Step By Step Guide)
Calls And Call Ratio Backspread (Explained With Real Time Data)
Technical Indicators – Meaning & Application
