Rolling an option... What are the cons?

A

Abundance Magnet

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?
 
Seems to be all positive (which raises red flags)
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There is nothing inherently positive in rolling an option position. If your market view is the same as before, you roll it, otherwise you close the position.

Then your market view can be correct or wrong. If you are correct you will be rewarded, otherwise you will be punished.
 
Abundance Magnet said:
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?
More...

Rolling losing options positions forward is like trying to catch a falling knife in a downtrend and stepping in front of a soaring rocket that's going into space in an uptrend. Yes you might finally land in a winner, but after how many losses? Is it worth it? I mean I prefer to just cut the losses and start anew with the next expiration. Personal preference.
 
Rolling is like the Martingale strategy - double your bets till you win. Theoretically you will finally win. Practically there are limits because of capital available, fear when outsize position is created, and the fact a scrip / market can move against us longer than we can withstand it.

Positions can be rolled either up/down or [ii] forward.

Rolling up/down requires us to commit more capital. So one has to stop after a few rolls. It is okay to roll up/down two time - that is the max I have attempted. If required 3rd time then take the now bigger loss.

Rolling forward requires less capital. But trader remains exposed to the trending scrip. Here also thumb-rule of max two rolls may be okay. I have not tried rolling forward but prefer to roll up/down and close the trade in the current expiration.
 
Most likely you start with an planned short term position and end up with a long term one and praying.

For example, you sell a naked weekly call which goes wrong, you roll that "for free" for a monthly one. Then happens the same thing with the monthly one and you roll for an yearly one.
What started to be an weekly small premium position is still a small premium but it's now a yearly position.

It's an exaggeration, obviously, but just for stating a point.
 
Abundance Magnet said:
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?
More...
Rolling losses really only makes sense if you're short. I almost never roll a loser (except to exploit newly cheaper vol while trade still in tact), but frequently roll long winners (up, out, and in).

But the problem with rolling is it needs to be a marketable order and you give up a lot on this in spread and commission (particularly on the ITM side). So my "rolls" are usually legged-in on separate orders during intra day chop.
 
beerntrading said:
Rolling losses really only makes sense if you're short. I almost never roll a loser (except to exploit newly cheaper vol while trade still in tact), but frequently roll long winners (up, out, and in).

But the problem with rolling is it needs to be a marketable order and you give up a lot on this in spread and commission (particularly on the ITM side). So my "rolls" are usually legged-in on separate orders during intra day chop.
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Agree on your premise of doing them one leg at a time. I think the idea of doing them as a one commission order is a case of saving here but costing more there.

What do you mean by rolling up long and in?
 
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