How To An Why You Would Ever Want To “Roll” An Options Position

How to “Roll” option contracts and why you would want to be “Rolling” option trade are two very different topics which we will cover here.

How to “Roll” an options position?

The process of Rolling an option trade is fairly simple. Let’s say own an AAPL CALL option and want to keep the benefits of holding it? All you do is simply close your current position and open the same position in the next month’s option chain with the same strike price.

Rolling options in this example is just changing the expiration month from December to January. You can also move your strike point to a new strike point during the month as another strategy. Either way, the basics of Rolling means “moving” your trade/risk to another strike price/month.

Why would you ever want to “Roll” an options position at or before expiration?

Part of options trading rolling strategy also involves knowing when to avoid rolling and at the same time know when to roll a profitable position. Rolling works for profitable trades if the investor is long a put option and the market is falling, the trader may prefer to lock in a profit by selling the now profitable option and buying another with a lower strike price. That maintains a position with profit potential, but it also locks in a profit when the market reverses.

Rolling a position could also work to “try” to avoid a loss on a trade. Again here we focus on the word TRY – because rolling a losing position does not always end up as a great trade. Usually this happens when a trader is losing money on an option position and refuses to take a loss (at least psychologically). They want a new position that gives them an opportunity to make back the money they have already lost. So for example they close out a losing trade with a $200 loss and “Roll” into a new trade with an extra $200 premium to make up for the difference. They problem is that they SHOULD treat this as a NEW trade and not simply a continuation of the last trade.

It’s okay to take a loss…

Trading with a mindset such as the one above is very destructive for any trader. People who are in search of a profit at any cost end up taking on too much risk. In our opinion, it’s not essential to roll a position. It’s okay to exit and take a loss instead.