Options: "Rolling" Option Trades

When engaging in options trading, it is only a matter of when, not if, a trade will move against you and challenge your strike. Despite being disciplined and following the 10 rules in options trading, trades will be challenged, and some losses are inevitable. However, some of these potential losing trades can be managed effectively to circumvent losses altogether via rolling. Given the right set of circumstances, trades can be rolled by closing out the pending trade for a debit and subsequently opening a new trade with a later date and further out-of-the-money strikes for an overall credit.

Options trading enables traders to define risk, leverage a minimal amount of capital, and maximize return on investment. Options trading can create smooth and consistent portfolio appreciation without predicting how the market will move. Options enable one to generate consistent and durable monthly income in a high probability manner in both bear and bull market scenarios.

An agile options-based portfolio is essential to navigate pockets of volatility and mitigate market downdrafts. The September correction, October nosedive, and election volatility into November are prime examples of why risk management is paramount. Over the past ~9 months (May-January), 190 trades were placed and closed. An options win rate of 97% was achieved with an average ROI per winning trade of 7.7% and an overall option premium capture of 82% (Figures 1 – 4). The performance of an options-based portfolio demonstrates the durability and resiliency of options trading to drive portfolio results with substantially less risk. Rolling option trades can be part of the overall options strategy to circumvent losses and mitigate risk.

Figure 1 – Overall option metrics from May 2020 – January 18th, 2021
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