Rolling an option... What are the cons?

[destriero]

There is no "rolling." It's a loss-avoidance strategy. If you wouldn't effect the (roll) trade as an opening position then it's nonsense.

 

[ironchef]

Hi,

I've read a bunch of stuff on rolling options forward. Seems to be all positive (which raises red flags). What am I missing? What are the cons? Why doesn't everybody just keep rolling forward until they are 'right'? Does it eventually blow up somewhere?

I suspect you are referring to writing options, collecting premium, and if the underlying goes against you, you then roll "out", (+ up) often collect more premium?

When I started out back in 2013, this was what I did after reading a few books and watching lots of tastytrade videos. One memorable video was watching Karen made millions selling DOTM options and stating she "never give the premium back" (by rolling). Guess what, it didn't work, the net results for me was I lost money after writing hundreds of calls and puts (compare to buy and hold the underlying).

I realized the fallacy after I read Maverick74's posts on the effect of delta, gamma and vega on options and how dangerous it was writing DOTM options. I still roll but do it only to close that position and starting a new position based on new assumptions.

 

[Abundance Magnet]

I suspect you are referring to writing options, collecting premium, and if the underlying goes against you, you then roll "out", (+ up) often collect more premium?

When I started out back in 2013, this was what I did after reading a few books and watching lots of tastytrade videos. One memorable video was watching Karen made millions selling DOTM options and stating she "never give the premium back" (by rolling). Guess what, it didn't work, the net results for me was I lost money after writing hundreds of calls and puts (compare to buy and hold the underlying).

I realized the fallacy after I read Maverick74's posts on the effect of delta, gamma and vega on options and how dangerous it was writing DOTM options. I still roll but do it only to close that position and starting a new position based on new assumptions.

HI,

yeah, I was referring to writing options and rolling them forward, if needed. I've searched the boards for his articles... found some in the trading diary side... I'll PM you anyway.

I have yet to roll an option. Either I like the trade, or I don't. At least, that's my current perspective. It's an ever evolving process.

 

[Sig]

I think it's inherently deceptive/confusing/incorrect to call it "rolling" an option. You "roll" futures positions. You eat all the theta and then buy/sell another option with options. Not at all the same thing.

 

[beerntrading]

I think it's inherently deceptive/confusing/incorrect to call it "rolling" an option. You "roll" futures positions. You eat all the theta and then buy/sell another option with options. Not at all the same thing.

A bit difficult to reconcile that with common nomenclature, "rolling up" / "rolling down".

Can you be more specific how it's deceptive or confusing?

Also, you're overlooking rolling when you're long and disposing of delta exposure to gain gamma exposure. (Granted, the is the other side of the trade you seem to imply)...in this case, paying additional theta to maintain a constant (with prior close) exposure on a winning position.

Though, this really should reinforce sig's point on why rolling short losers isn't necessarily smart (or something that should be legitimately associated with options strategy).

Edit: point being, rolling options is substantially similar in some cases to it's CFD equivalent...maintain a position direction and position size as conditions change.