Rolling Options Trade Explained | Step By Step Guide

In this video, I’ll explain what option rolling is, in what situation should you roll your options, then I’ll show you a quick step by step guide on rolling options in Interactive Brokers.

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0:00 - Intro

0:42 - What is rolling?
Rolling is a defensive option strategy to protect your options trade. This is needed to avoid getting assigned on a put or exercised on a call. Rolling just means you buy back an option at a loss, then immediately selling a new option at further expiry date to cover the loss.

1:09 - Rolling example
By rolling, a few things happen. First, we will avoid assignment by lowering the strike price. Second, instead of having an unrealized loss on our stock, we now have a profit on options. However in exchange, we have an option that expires much later.

3:38 - When should you roll?
First, you become suddenly bearish on the stock. You would roll to lower your strike price. Second, you don’t want to get assigned at all. For example, I am selling Tesla puts on margin. If possible I don’t want to get assigned, so rolling is useful. Third, you can roll covered calls to increase your profits, if the stock suddenly shoots up.

5:12 - You don’t have to roll everytime
However, you don’t have to roll everytime, sometimes it’s better to take assignment and start selling covered calls. Because even though rolling helps to avoid losses, you are actually reducing the amount of money you can collect.

It’s possible to roll forever. But everytime you roll, you are collecting only a bit of premium.

If you want to roll, it’s best to roll as soon as the stock goes past the breakeven price. Because the deeper in the money the option is, the lower extrinsic value your option will have. This makes it very hard to roll your option for any profit.

7:08 - Step by step guide

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