Options Rolling

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What’s option rolling?

Rolling means closing an options position and simultaneously opening a new one, typically with an expiration further out in time, and sometimes using a different strike price. It’s called rolling because the act of closing one position and opening a new one is sent to the market as one order, and executed at a single net price.

There are a number of reasons you might choose to roll an options position, but typically the goal is to extend duration. Extending duration allows you to close a position prior to expiration while establishing a similar position further out in time.

Keep in mind

Rolling involves closing an existing position and realizing gains or losses, while also opening a new position.

Rolling options doesn’t ensure a profit or guarantee against a loss. You may also end up compounding your losses. By rolling out, the duration is extended, which can also increase risks as there’s more time for the underlying security’s price to move unfavorably.

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What are different ways to roll?

Rolling out

Rolling out an option involves closing an existing options position while simultaneously opening a new one with the same strike price, but with an expiration date further out in time.

Rolling up

Rolling up an option involves closing an existing options position while simultaneously opening a new one with the same expiration, but at a higher strike price.

Roll down

Rolling down an option involves closing an existing options position while simultaneously opening a new one with the same expiration, but at a lower strike price.

Rolling up/down and out

An options roll that involves rolling your strike price up or down and out to a further expiration involves closing an existing options position and choosing a new strike and a new expiration further out in time.

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Why do traders roll options?

Many options strategies require active management and unlike stocks, options expire–you can’t hold on to them forever. When an option reaches expiration, it will either expire worthless (if it’s out of the money) or will result in an obligation to buy or sell shares of the underlying security (if it’s in the money). Rolling your options prior to expiration helps to avoid those outcomes, among other reasons.

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Scenarios where you might consider rolling your options

When you don’t want to carry a position into expiration but want to maintain a similar strategy

If you have a position nearing expiration but wish to stay in the trade (i.e., maintain a similar strategy), you can close your existing position while simultaneously opening a new one further out in time. You can do this using a rolling order.

When deciding to roll a long option, you can potentially reduce the cost of buying a longer-dated option by simultaneously selling the option you own and using the proceeds to buy the new option. When deciding to roll a short position, you can attempt to collect another credit by buying to close your existing position and simultaneously selling to open a new one.

To adjust your existing position

If one of your positions needs an adjustment, a rolling order can help.

For example, if you have a short option that is at-risk of assignment, you can use a rolling order to adjust the strike price, expiration date, or both.

Once again, any time you roll an option, you’re realizing a gain or loss and then establishing a new position.

Because your view of the underlying security has changed

If your view of the underlying stock or ETF has changed, you can use a rolling order to adjust your strategy by rolling to a different strike, expiration, or strategy.

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What are the price differences between a long and short option?

Price when rolling a long contract

The net price of the roll will be what you receive from the sale of your option minus the cost of the new option you’re buying. Rolling a long contract typically results in a net debit. Rolling to a different strike price or expiration date can affect whether the roll results in a net credit or a net debit.

  • Choosing to roll a long call to a lower strike price will usually increase the amount of the net debit, while rolling a long call to a higher strike price will usually decrease the amount of the net debit.

  • Choosing to roll a long put to a lower strike price will usually decrease the amount of the net debit, while rolling a long put to a higher strike price will usually increase the amount of the net debit.

  • A net debit is paying out an options premium. Your cash will decrease by the amount of the trade.

Price when rolling a short option

The net price of the roll will be the cost of buying to close your option plus what you receive from the sale of the option you’re selling. Rolling a short contract typically results in a net credit. Rolling to a different strike price or expiration date can affect whether the roll results in a net credit or a net debit.

  • Choosing to roll a short call to a higher strike price will usually decrease the amount of the net credit, while rolling a short call to a lower strike price will usually increase the amount of the net credit.

  • Choosing to roll a short put to a higher strike price will usually increase the amount of the net credit, while rolling a short put to a lower strike price will usually decrease the amount of the net credit.

  • A net credit is collecting an options premium. Your cash will increase by the amount of the trade.

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How to roll an option in the app

You can access rolling for your existing options by selecting Trade > Roll position.

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Disclosures

Options trading entails significant risk and is not appropriate for all customers. Customers must read and understand the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.

Robinhood Financial does not guarantee favorable investment outcomes. The past performance of a security or financial product does not guarantee future results or returns. Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy. Supporting documentation for any claims, if applicable, will be furnished upon request.

Any contents provided are for informational purposes only, does not constitute investment advice, and is not a recommendation for any security or trading strategy

Reference No. 1923258
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