The underlying security may continue to move against your directional trade thus, allocation discipline is key. When a trade breaches the strike price, one must be careful not to overleverage the amount of capital dedicated to the rolling trade. This will allow mean reversion to possibly take place and retrace back to out-of-the-money territory so rolling can possibly be avoided altogether. Rolling a trade is a last resort lever to pull, so allow the trade to mature as close as possible to its expiration date. If the strike width is too wide and the trade breaks down well below the protection leg, then the debit required to close the trade will be too great to overcome with a new credit without being over-leveraged in that trade. Initial strike width selection needs to be narrow. Now, he's offering to show his personal strategy guide to readers, which could help you unlock as much as $67,548 in extra income. That's why Jim Fink flips options trading on its head, making money more than 85% of the time. a LOT! Especially in today's topsy-turvy market. Most options traders place high-risk trades, hoping for a big payout. My #1 Rule: Don't Buy Options (especially in this market)! Initial trade structure is imperative, so rolling can easily be a viable option if needed. Initial Trade is KeyĮach initial option trade should be structured in such a way that enables the ability to roll the trade in the event the trade is challenged during the option lifecycle. Rolling out to a later date and further out-of-the-money strikes will reestablish this statistical edge and allow more time for the trade to work through the unexpected price excursion.

This statistical edge must be reset by rolling a trade to reestablish this edge to your advantage. This statistical edge is jeopardized when the strike price is breached, and the probability of success is no longer in your favor. Why Roll TradesĪ statistical edge or probability of success is on your side when selling options that are out-of-the-money. This rolling strategy provides more time and more of a buffer in the stock price movement while circumventing the loss. The new trade will be in the same underlying security but later dated with further out-of-the-money strikes. The net credit received will negate the debit required to close out the initial trade while providing net premium income. Rolling a trade involves closing out the pending trade that is challenged for a debit and then opening a new trade for a credit. Once the strike is breached, potential losses come into play. Rolling a trade is a mitigation strategy that is deployed when an option’s strike leg is breached. Rolling option trades can be part of the overall options strategy to circumvent losses and mitigate risk.įigure 1 – Overall option metrics from May 2020 – January 18th, 2021įigure 2 – Overall option metrics from May 2020 – January 18th, 2021įigure 3 – Overall option metrics from May 2020 – January 18th, 2021įigure 4 – Overall option metrics from May 2020 – January 18th, 2021 What is Rolling? The performance of an options-based portfolio demonstrates the durability and resiliency of options trading to drive portfolio results with substantially less risk. An options win rate of 97% was achieved with an average ROI per winning trade of 7.7% and an overall option premium capture of 82% (Figures 1 – 4). Over the past ~9 months (May-January), 190 trades were placed and closed. The September correction, October nosedive, and election volatility into November are prime examples of why risk management is paramount. Options enable one to generate consistent and durable monthly income in a high probability manner in both bear and bull market scenarios.Īn agile options-based portfolio is essential to navigate pockets of volatility and mitigate market downdrafts. Options trading can create smooth and consistent portfolio appreciation without predicting how the market will move. Options trading enables traders to define risk, leverage a minimal amount of capital, and maximize return on investment. Given the right set of circumstances, trades can be rolled by closing out the pending trade for a debit and subsequently opening a new trade with a later date and further out-of-the-money strikes for an overall credit.

However, some of these potential losing trades can be managed effectively to circumvent losses altogether via rolling.

Despite being disciplined and following the 10 rules in options trading, trades will be challenged, and some losses are inevitable. When engaging in options trading, it is only a matter of when, not if, a trade will move against you and challenge your strike.

Jim fink option trading