Rolling Options: When & How
Rolling Options
Key Takeaways
- Rolling means closing your current option and opening a new one (same stock, different strike or expiration).
- Always roll for a net credit. Never pay to roll.
- Rolling buys time but doesn't eliminate risk. Sometimes taking assignment is the better choice.
TL;DR
Rolling an option means buying back your current position and simultaneously selling a new one with a different strike or expiration. The goal is always a net credit. Roll to avoid assignment, extend duration, or adjust strikes. If you can't roll for a credit, consider taking assignment instead.
What Is Rolling?
Rolling is a two-step trade executed simultaneously:
- Buy to close your current option (the one about to go against you)
- Sell to open a new option with a different strike and/or expiration
Most brokers let you execute both legs as a single "roll" order, ensuring you get a net credit (or at least know the exact cost).
Rolling doesn't eliminate risk. It buys you time and potentially adjusts your strike to a more favorable position.
Types of Rolls
Roll Out: Same strike, later expiration. Buys more time for the trade to work.
Example: Close May $50 put, open June $50 put.
Roll Down (puts) / Roll Up (calls): Lower/higher strike, same expiration. Adjusts your position.
Example: Close $50 put, open $45 put (same expiration).
Roll Down and Out (puts) / Roll Up and Out (calls): New strike AND later expiration. The most common adjustment.
Example: Close May $50 put, open June $45 put.
The Net Credit Rule
Always roll for a net credit. This means the new premium you collect (selling the new option) exceeds the cost to close your current position (buying back the old one).
If the roll costs you money (net debit), you're digging a deeper hole. In that case, it may be better to take assignment and manage the shares directly via covered calls.
The further out in time you go, the more likely you'll find a credit. More time means more extrinsic value to sell.
When to Roll a CSP
Roll your cash-secured put when:
- The stock has dropped near or below your strike and you want to avoid assignment
- You can roll down and out for a credit (lower strike + later expiration)
- You still want to own the stock but at a lower price
Don't roll when:
- You can't get a credit: take assignment instead
- The stock has fundamentally deteriorated (bad earnings, management scandal): just close for a loss
- You've rolled 2-3 times already: cut the trade and move on
When to Roll a Covered Call
Roll your covered call when:
- The stock has risen above your strike and you don't want to be called away
- You can roll up and out for a credit (higher strike + later expiration)
- You still believe in the stock long-term
Don't roll when:
- You're happy selling at the strike price: let it be called away
- The stock has moved far past your strike: rolling would require a debit
- You've been rolling the same position for 3+ months: take the call-away and restart
Rolling Example
You sold a $50 put on XYZ for $2.00 when XYZ was at $55. Now XYZ has dropped to $49 with 7 days to expiration. Your put is worth $3.50.
Option A: Take assignment. Buy 100 shares at $50, cost basis $48 (after premium).
Option B: Roll down and out.
- Buy to close May $50 put: -$3.50
- Sell to open June $47 put: +$4.00
- Net credit: +$0.50 ($50)
You've lowered your strike from $50 to $47, collected an additional $0.50 credit, and bought 30 more days. Your total premium collected is now $2.50. If assigned at $47, your cost basis is $44.50.
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