Rolling-over mechanism

Let me do a quick post before heading to the airport soon to embark my journey to Norway to chase Northern Light! I should be away for two weeks before resume writing the next post.

In the previous post, I introduced a technique called “rolling-over” an options position. Rolling over an options position means closing the existing options position that is going to expiry and opening a new options position with longer date to expiry.

(1) Position Now (Before Rolling Over)
-1 AAPL Nov 15 120 Put

[This means I am holding 1 unit of Sell to Open Put Options position of Apple share at $120 strike price that is going to mature in Nov 2015 (3rd week of the expiration Friday, 20 Nov 2015)]

(2) Rolling Over Mechanism
+1 AAPL Nov 15 120 Put (Close the existing position via Buy to Close)
-1 AAPL Jan 16 120 Put (Open a new position via Sell to Open)

[If I intend to roll the position to a further date of expiry, I should execute the above 2 transactions]

(3) Position After Rolling Over
-1 AAPL Jan 16 120 Put

[Now, this is my position and the only different of this position against the position in (1) is the maturity date. In technical term, it means that we have rolled over the position from Nov 15 to Jan 16.]

I mentioned four stages of becoming a successful options trader in the first post. In stage 4, we aim to achieve > 90% profit by using advance repair method. One of the advance repair method requires us to roll position skillfully. Hence, it is important to internalize this concept in order to become a successful options trader. Cheers!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s