Strategies for changing options positions: times and methods

Stock Options: Mobile Options

Key points

  • Rolling options involve closing a current options position and simultaneously opening a new options position with a changed strike or expiration date.
  • Most online brokerage platforms and mobile apps have a feature to initiate a position that does this.
  • Options may be increased, decreased, or extended to a further expiration date.
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Stock options trading requires timing, especially when based on chart patterns. One of the major frustrations with directional options trades occurs when the expected move occurs after the options’ impending expiration. Traders should have the ability to reevaluate their assumptions for entering into and remaining in a trade and make necessary and timely adjustments. This is a given when trading stocks in any stock sector and can be a given when trading options.

You’ve probably looked in the rearview mirror and seen your stock make the expected move right after expiration. If only I could have held out until the next deadline. If this has ever happened to you, then consider your options.

Adjustments to times and prices

Weather can often remedy your options trades by giving the trade more time to complete. Rolling options allow you to make timing changes to your trade as needed, extending expiration dates. You may need to adjust your price targets. The rotation options also allow you to do this. The rotation options allow you to change the expiration date and strike price.

Whether you’re in a profit or loss position, rolling options allow you to adjust as needed as long as you stick to a plan. Rolling options can be used on directional trades, debit spreads, or covered calls.

What are rotation options?

Rolling options involve closing your existing options position and simultaneously opening a new options position for the same underlying security. Most brokers that enable this feature allow you to place the order and the platform will attempt to execute both orders at the same time. You can manually close and open a new position without the feature, but it may not be simultaneous or quick.

Rotation options are not a failsafe

Please note that when you close your position, your gains or losses are accounted for. Option rollover does not protect you from losses. It actually reduces your losses. Therefore, you need to have a game plan and solid premise intact whenever you reverse a losing position. Be careful with Greek options if you are making directional trades because Theta is not on your side.

Do rolling options trigger a wash sale?

The wash rule prevents you from claiming loss deductions if you sell a stock or security at a loss and repurchase it or a substantially identical security within 30 days of the sale. Switching the options closes the position, but does not activate the flush rule. Even though you are placing a simultaneous trade with the same underlying security, you are using different strikes, call or put expiration.

The different factors of the new opening options position prevent it from qualifying as identical securities and avoid the wash rule. If you sell a stock and buy an identical option, it falls under the wash rule. If you close an option positively and buy it back with the same strike and expiration, it can fall under the wash rule. The wash rule aims to prevent investors from taking a tax deduction for securities they still own.

When to launch options

There are many reasons why you should choose your options. You may not want to hold the position until expiration and look to expand the expiration date. You may want to change your location. You may want to protect profits, cut losses and reverse a losing position. When you move options to a higher strike price, you are usually protecting your profits when you do so

. When casting options to extend the expiration date, buying more time on a losing out-of-the-money (ITM) position is usually used.

Three ways to choose options

There are three directions to pull options. The first two involve adjusting strike prices and the last involves extending the expiration date.

You can roll them up when your position is profitable and you expect the price to go higher. For example, your ABC 55 calls are in the money, but the chart looks stronger for a move higher, so you take them to the 60 calls.

You can reduce options to a lower strike price and keep the same expiration. This adjustment improves your chance of achieving ITM without having to pay an additional time premium. It involves closing the position and opening a new one at a lower strike price but maintaining the same expiry date.

You can implement options by extending the expiration date. If your ABC calls are out-of-the-money (OTM) with a week left to expire, you can choose to extend them to the next month’s expiration. This extends the life of the trade, giving it more time to unfold.

You can also decide to change both the exercise and expiration dates if your strategy requires it.

How to roll options

Most brokerage platforms and apps provide a feature that allows you to launch a position or launch an option. By selecting this feature for the option position you hold, you can choose which strike price and expiration date to rollover to. Please contact your broker for specific instructions. Doing this via in-platform or in-app functionality is easier since it runs almost simultaneously.

If you do not have this feature, you will manually close the existing position and open the new position. This will take longer and may result in more slippage.

Positioning of the exchange

Let’s use the video sharing platform as an example Rumble Inc. NASDAQ: RUM.

The weekly RUM candlestick chart illustrates a breakout of the bullish flag. The weekly relative strength index (RSI) is rising towards the 70 band again. Since this is a broader timeframe chart, the price range is also much wider as trend movements can form and continue to move for prolonged periods.

Since the position is ITM, we expect it to continue rising in the coming weeks or months. We decide to increase the option position from the $8 strike price to the $10 strike price. Since we own 1 RUM $8 call expiring on January 17, 2025, we can select the roll position feature and choose the new position, which will be the RUM $10 call with the same expiration.

The result of this roll-up will be a credit of 60 cents, which is a profit we have recorded by extending the upside potential of the trade.

Rolling provides agility

Rolling options allow you to change the strike price or expiration based on changes in your strategy. They can be used to book profits on ITM positions and gain time on OTM positions. The most important aspect is the agility it provides you when you are in a position of options, so you don’t have to get “stuck” in one position. Make sure you plan your strategy ahead of time and stay agile.

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