Rolling options for profit
- Rolling
- Hits: 146
Naked PUT or CALL options carries unlimited risk. Adverse market movement will cause trades to be tested when the underlying stock price go bellow the PUT options strike price, or above the CALL options strike price.Naked PUT or CALL options carries unlimited risk. Adverse market movement will cause trades to be tested when the underlying stock price go bellow the PUT options strike price, or above the CALL options strike price.
If we leave the PUT or CALL options ITM until expiry, then the system will exercise the contracts. System will deduct money from our account to buy 100 shares of the underlying asset at strike price of PUT options or system will deduct money from our account to buy 100 shares at market price and sell to buyer at strick price of CALL options.
For PUT options seller, the cost of 100 shares from assignment is higher than market price. We can only be profitable if stock price goes above our cost. We can still sell coverred CALL to reduce overall costs.
For CALL options seller, the 100 shares is sold at price lower than market price. Seller does not hold anything. It is a loss.
To avoid options getting exercised, we can roll options before experation to a future date and collect more premium (to reduce cost at the same time). This way, we have a chance to close the options at minimum losses or even with some profits. Here is what I did for one of my trades.