Thread by @wealthcoachmak

All rollovers are NOT the same when you Sell Options

What are rollovers?

You BUY back an option that you sold and then you SELL another option at a different strike price and/or expiry

Here are a few different types of rollovers

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#OptionsTrading #Optionselling

Forced Rollover

Your option is already at a LOSS

Your option is about to be called or assigned

But you don’t want that

So you are FORCED to roll it over to the future at the same strike price or higher

Example: $AAPL

The price of $AAPL is above the strike price of the call option

To prevent my shares being called at a value below my strike price I ROLLOVER the option

I kept the same strike price and only went out by a week

I could have chosen a higher strike and more distant expiry

“Get-your-shares back” Rollover

The point of this rollover is to just get your shares back before the expiry

Option would have expired worthless but you buy it back for a $1 or $2 or $5

So you can take advantage of a good time to sell another option in the future

$TSLA… twitter.com/i/web/status/1…

The 4/14 $187.5 would have expired worthless

But on the day of expiry $TSLA was up and the premiums for the following week were juicy because of the earnings

So I wanted to get my shares back before expiry so I could sell another call for next Friday

Capture weekend time decay

“Get-extra-premium” Rollover

Your option is going to expire worthless if you keep it till expiry

The current price is a LOT higher/lower than your strike price

So you feel a bit adventurous and roll up/down your strike price for that option

Same expiry and more premium

$TSLA… twitter.com/i/web/status/1…

This particular type of roll up/down in strike price is adding RISK

For that extra risk you are getting more premium

You are INTENTIONALLY moving the strike price closer to the current price

Still in the safe zone but slightly more unsafe than your previous strike

Get more 💵

To summarize:

Not all rollovers are created equal

Not all rollovers are a losing trade

In fact some are done to make the NEXT trade a bigger winner

Some are done to add more cash

Some are done out of desperation