Can you just keep rolling out losing positions endlessly?

[Pekelo]

The answer according to Karen, the Supertrader is YES!

But seriously, no. A roll is a new trade and you already took a loss.

To use a very non-PC analogy, it is like asking: If my first kid is a moron, can I just keep making babies until one of my kid is going to be normal? Yes you can keep making babies (you can keep rolling) but no, there is no guarantee that not all of them (or most of them) are going to be morons. (losses)

 

[Scataphagos]

I saw an essay suggesting this. Does it only work if you do the same strike price?

Contrary to the notion of "let profits run, cut losses short".

 

[qlai]

I thought the idea is to only roll for a credit, so that you don’t put any more money into the trade but give yourself some more time. But if the option moves too much into the money, it becomes impossible to roll for credit?

 

[ZBZB]

The opposite of rolling down and out is the wheel strategy where you take delivery on your short put and then sell a call. It depends if you think markets trend or mean revert.

 

[taowave]

It works when there is no heat and you are trading one lots..Make it meaningful,and see how you feel when vol explodes and Senor Gamma is squeezing your nuts while your P and L is a sea of red ink...

Still, you make money when you roll, so how does it deplete someone's trading account?

 

[IronFist]

Is it still rolling if you don't make money on it?

You sold $20 worth of puts. Now they're worth $40. So you buy them back for $40 and sell more for $40. Your net is still $20 without commissions.

 

[oraclewizard77]

Is it still rolling if you don't make money on it?

You sold $20 worth of puts. Now they're worth $40. So you buy them back for $40 and sell more for $40. Your net is still $20 without commissions.

Not sure what this would be called but I will explain how you could make money. Say a stock's price is going down. You sell out of the money puts and at the same time buy in the money puts. If the stock continues to fall you would make money till the price of the stock equals the value of the out of the money puts.

 

[IronFist]

I thought the idea is to only roll for a credit, so that you don’t put any more money into the trade but give yourself some more time. But if the option moves too much into the money, it becomes impossible to roll for credit?

So, what if you roll for same price? That's not adding funds, just extending the duration.

 

[IronFist]

The opposite of rolling down and out is the wheel strategy where you take delivery on your short put and then sell a call. It depends if you think markets trend or mean revert.

Like if price falls too hugely, the cost of a covered call won't even make sense.

If you lose like 30% on the puts and take assignment, the cost of the covered calls will either 1) be too far away that the level you need to make a profit won't even be for sale, or 2) likely be too far out in the future, like if you need a 40% gain on the stock to make money, there might not be any calls for sale at that price unless you go huuuuuuuuuuugely into the future.