We don’t like losing so this segment is about rolling our short premium trades to extend duration, take in more premium or both so our losing positions can hopefully become winners. Every premium seller needs to know these strategies and be comfortable with them.
We believe in selling premium and along with that we believe in managing winners. Not every trade can be a winner but sometimes losers can turn into winners. When the market goes against us we also have to manage our losing positions. We do this by rolling out in time to increase duration, up or down in price to increase the premium sold or sometimes both.
When we are short a strangle that is moving against us we can roll the untested side close to increase the premium sold, We can also roll the tested side out in time to increase our duration. We can also do both (and of course we can always take the loss).
The first step is to know when to roll. That is discussed and a table is displayed with data on different scenarios. It indicates which side we should do first and when. The next step to take was then discussed with tables displaying the data that explains our choice.
The final part discussed examines the different scenarios in rolling out in duration. Do we roll to the same strike in just a simple calendar spread or do we change the strike level too and make our order a diagonal spread? The table displayed explains our choices.
Watch this segment of “Best Practices” with Tom Sosnoff and Tom Preston for important information on rolling options. whether to roll, when do we roll and what strikes to roll and more.