How do I determine when and how to roll our option positions?
Time
It's normally best to place a trade with around 55 days to expiration but sometimes I prefer shorter expirations.
For example, if there is an upcoming earnings then I prefer shorter expiration due to the collapse of volatility.
Another example would be if a stock has a big move in one direction then I like to bet against further move in the same direction with a short expiration.
Generally speaking, rolling to next month at around 21 days till expiration gives us better control over our portfolio.
Strike position
Sometimes the stock moves too much and stresses our position. In this instance I like to assess if it's feasible for me to keep my position.
For example, earlier this year there were multiple stocks which fell significantly (e.g. PYPL, META, NFLX, etc.) and I had no choice but to accept a loss.
If the position can still be saved (in most cases), then I check if I can adjust with the same expiration but often I have to roll to the next month.
Sometimes it's worth sacrificing some of the credit we received to move our strike further away from the price.
A perfect example for this would be my current SQ position.
So what's my trade for today?
#M (#Macy's). The earnings was positive and the stock moved a fair bit. Although the IVR is very low, I thought I would try my luck with a strangle given that the credit received was very high compared to the capital it used.
The stats
Trade Type: Short Strangle
Strike: $19 / 25
Expiry: 16 Dec
Delta: -8
IV Rank: 5
Premium: $0.8
Cap Req: $223
Annualised Prof at Expiry: 452.%
IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.
Closed:
https://www.tycoonitos.com/community/market-comments/market-comments-20221109
Let me know what you think.
Nice winner!
Closed at $0.45 for an annualised profit of 441%.