
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
OverviewLong callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBondsBrokersCandlestick patternsChart patternsDay tradingDividendsEconomic indicatorsEconomicsETFsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvesting basicsInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketSwing tradingTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend tradingGlossary
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a bot
Using the bot wizard
Automation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeEvaluating underlying symbol OHLCComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolEvaluating bot position activity historyEvaluating bot position activity history with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsInstantly create bot from backtestBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginSign Up
ResourcesPodcast

Rolling up Strike Prices vs. Closing Out the Trade – What Should I Do?

If you trade options, you'll undoubtedly run into a scenario where you get challenged by a stock moving against your position. When this happens the first question many people ask is, "Do I start rolling up strike prices and adjust the position or close out the trade for a loss?"
Rolling up Strike Prices vs. Closing Out the Trade – What Should I Do?
Kirk Du Plessis
Nov 3, 2017

Naturally, we are in the camp where we believe, and our backtesting confirms, that rolling your strike prices closer to where the stock is trading and taking in additional net credits ultimately gives you the best opportunity to either profit or reduce risk on the position. On today's podcast we'll explore this topic more deeply with a very detailed example and walk through so you understand conceptually how it all works moving forward.

Key Points from Today's Show:

  • When you roll up your strike prices, you are collecting more credits.
  • This moves the unchallenged or untested side of the trade closer to where the market is.
  • Taking what the market gives you and adjusting along with the markets as they move.

Example:

If the stock is trading for $100 and starts to run up to $105, you would roll up your puts, which are below the market. If the stock is trading at $100 and starts falling to $95, roll down the calls closer to where the stock is trading.

Why Adjust Instead of Closing Out?

  • When adjusting a position without adding any additional risk, you take in more credit.
  • The credit widens your break-even point on your challenged side.
  • If those break-even points are ever breached, then at least you have effectively reduced risk.
  • An adjustment reduces the loss that you might have on that particular side of the trade.
  • This cuts the trades loss profile, creating an unintentional win.

*Myth: the trade you start with is the exact same trade you end with.

That is only true if you never make an adjustment.

Example: If you start with a strangle, that doesn't mean you end with a strangle. You could potentially adjust the trade into straddle. So if you have a trade with a 70% potential chance of success to start with and the potential to lose $500, the goal is not to lose the maximum amount. It's always to adjust into a position to cut the loss. This is another way to break the zero-sum cycle.

Case Study:

A stock is trading at $100. You sell the 95 puts and the 105 calls to create a simple strangle position. Next, you sell the strangle for a $2 credit, so you collect $200 of premium. This moves the break-even points on either end to 93 on the put side and 107 on the call side.

Next, the stock starts to rally higher, all the way up to 104. If you are still 2 or 3 weeks until expiration, roll up the short 95 put options to the $100 strike price where it was originally trading. The only side of the trade that is generating money is the put side. Say those puts now have decayed in value to $20, or 20 cents of the option premium. They have gone down in value because the stock has run up, which is ideally what you want when selling naked puts.

Then, you want to close out of the put options, roll them higher to the $100 strike because the $100 strike is going to carry more premium than the 95 puts. It's much closer to the stock, has a higher chance of going in the money, therefore it has more premium. By rolling up, you are closing out the 95 puts, buying them back for 20 cents, and then resell another put option at the $100 strike. This transfers the position from one strike to another.

Now, you can sell the $100 strike put options for 80 cents. You can no longer sell them for the original dollar and you are closer to expiration. The net credit that you collect in this case is 60 cents between the buy and the sell. This is considered an additional net credit to your original position.

At this point, you have the 100 strike puts and the 105 strike calls and the stock is trading at $104. This time the credit you have taken in is a total of $2.60. This moves the break-even point on the call side from 107 up to 107.60. By rolling up the put side and adding the additional credit you are now moving the range on your call side break-even up by the amount of credit taken in. The credits may allow you just enough wiggle room to be profitable in the position, which is the main goal.

Now, the stock is trading at $104, you are still leaving room for the stock to come back down. Adjustments get more and more aggressive as you start getting close to expiration. Three weeks out from expiration, you want to make an adjustment but still, leave room for the stock to come back down. If the market does challenge you, make an adjustment but leave room for the market to ebb and flow.

The market continues to move aggressively against your position. From the 104 strike, it moves up to the 107 strike. Now it's right on the doorstep of your break-even point. A week out from expiration, you are now at a break-even point. But because you rolled up your original puts from 95 to 100, you still have 60 cents of room for the stock to move and still make money on the position. The profit will not be a lot, but there is still room for the position to generate some income.

At this point, you can start to be more aggressive by rolling up your put options even further. The options on the call side are in the money, not yet at risk of assignment on those contracts. Now you can buy back your strike put options for 20 cents. Can also sell the 105 calls for 60 cents. You are now able to sell for less and less credit as you get closer to expiration. Rolling up from the 100's to the 105 puts will give you a net credit of 40 cents.

This net credit gets added to overall premium and credits collected, for a total of $3 in overall credit, moving break-even point $3 from call strike price, adjusting the break-even point out to 108. Now you have the straddle at 105 for the month of expiration. This leaves another $1 that the stock can move before we actually truly start losing money after all the credits that you received.

Key Takeaways:

  • Adjusting the unchallenged side of a trade allows you to move the break-even point.
  • When the break-even point is wider, it gives you more room to potentially make a profit on a losing trade.
  • Making an adjustment allows you to collect more premium, increasing net overall credit.
  • As you get closer to expiration, be more aggressive with your adjustments still leaving room for the market to move.
Case Studies
Assignment
Expiration

4.8 (1.1k Ratings)
Subscribe Now

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547