In the dynamic world of options trading, strategies evolve as market conditions change. One powerful technique that experienced traders often employ is "rolling options." This isn't just a fancy term; it's a strategic adjustment that can help you manage risk, extend your time horizon, or even lock in profits.
If you're an ETRADE user looking to master this skill, you're in the right place. This comprehensive guide will walk you through the process of rolling options on ETRADE, step by step, ensuring you understand not only how to do it, but also why you might want to.
What Exactly Does "Rolling Options" Mean?
Before we dive into the "how-to," let's clarify what rolling options entails. At its core, rolling an option means closing an existing option position and simultaneously opening a new one, typically with a different expiration date, strike price, or both. It's a way to adjust your position without completely exiting the trade. Think of it as a tactical pivot, allowing you to adapt to new market information or give your trade more time to work out.
There are generally three types of rolls:
Rolling Out: Extending the expiration date of an option to give the underlying asset more time to move in your favor. This is often done when a position is nearing expiration and is slightly out-of-the-money, or when you believe the underlying will eventually move as predicted but needs more time.
Rolling Up: Increasing the strike price of a call option (or decreasing the strike price of a put option). This is typically done when your existing option is profitable, and you want to lock in some gains while still participating in further price movement.
Rolling Down: Decreasing the strike price of a call option (or increasing the strike price of a put option). This might be used defensively to reduce risk or adjust a losing position, giving you a better chance for recovery.
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| How To Roll Options On Etrade |
Why Would You Roll Options? The Benefits Unpacked
Rolling options offers several compelling advantages for traders:
Risk Management: It can help mitigate potential losses by giving you more time for a trade to become profitable or by adjusting your strike price to a more favorable level.
Profit Preservation: For winning trades, rolling allows you to lock in some profits while maintaining exposure to further upside (or downside, depending on your strategy).
Extending Time: Options are time-decaying assets. If your thesis is still valid but the option is nearing expiration, rolling out can buy you valuable time for the underlying to move in the desired direction.
Adapting to Market Changes: Markets are dynamic. Rolling provides the flexibility to adjust your strategy as your outlook on the underlying asset changes.
Avoiding Assignment: For short option positions (like covered calls or naked puts), rolling can help you avoid or delay assignment, which might involve buying or selling the underlying stock.
Important Considerations Before You Roll
While powerful, rolling options isn't a magic bullet and carries its own set of risks.
Compounding Losses: Repeatedly rolling a losing position can sometimes exacerbate losses, especially if the market continues to move against your thesis. It can be tempting to "double down" and keep hoping, but it's crucial to have a clear exit strategy.
Transaction Costs: Each roll involves closing one position and opening another, meaning you'll incur additional commission fees from ETRADE. While ETRADE's options fees are competitive ($0.65 per contract, or $0.50 if you make 30+ trades per quarter), these can add up.
Time Decay (Theta) Acceleration: If you're rolling out to a longer-dated option, you're buying more time, but that time also has a cost, and options lose value as they approach expiration (theta decay).
Market Risk: The underlying security's price has more time to move unfavorably, potentially increasing your risk when rolling out.
Always have a clear reason for rolling an option and a defined exit plan, even after the roll.
Tip: Look out for transitions like ‘however’ or ‘but’.
Step-by-Step Guide: How to Roll Options on E*TRADE
Are you ready to give your options trade a second chance or lock in some early gains? Let's walk through the process on the ETRADE platform. This guide assumes you have an active ETRADE account with options trading approval.
Step 1: Engage with Your Existing Position & Identify the Need to Roll
First things first, let's look at your current options position. Open your ETRADE account and navigate to your Portfolio.*
Locate the Option: Find the specific options contract you want to roll in your positions list. You'll see details like the underlying symbol, strike price, expiration date, and your current profit/loss.
Assess Your Situation: Ask yourself:
Is my current option nearing expiration?
Is it in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM)?
Has my market outlook changed, or do I need more time for my thesis to play out?
Am I trying to lock in profits, mitigate losses, or avoid assignment?
Understanding your objective is crucial, as it will dictate how you roll the option (e.g., rolling out, up, or down).
Initiate the Roll: On E*TRADE, you can usually initiate a roll directly from your Positions page. Look for a "Trade" button or a similar option associated with your specific option position. Often, you can right-click on the position or click on an "Adjust" or "Roll" button. This will typically open an options trade ticket.
Step 2: Access the Roll Feature on the Trade Ticket
Once you've initiated the trade from your positions, E*TRADE will usually pre-populate a multi-leg order ticket for you.
Recognize the Spread Order: Rolling an option is essentially a spread trade – you're selling your existing option (to close) and buying a new one (to open) simultaneously. E*TRADE's platform is designed to handle this as a single, combined order.
Locate the "Roll" Function: Within the trade ticket, you should see clear options to "Roll" or "Adjust" your position. The platform will often present you with the current option leg (the one you're closing) and then prompt you to select the new option leg (the one you're opening).
Step 3: Define Your New Option Parameters
This is where you determine the specifics of your roll. Based on your objective from Step 1, you'll choose the new expiration date and/or strike price.
Select New Expiration Date:
If you're rolling out, you'll choose a later expiration date from the options chain. Consider how much extra time you need.
If you're only rolling up or down, you might keep the same expiration month or choose a slightly further one.
Select New Strike Price:
For rolling up a call (or down a put), you'll choose a higher strike price for calls or a lower strike price for puts.
For rolling down a call (or up a put), you'll choose a lower strike price for calls or a higher strike price for puts.
The platform will present the options chain, allowing you to easily browse and select the desired strike and expiration.
Tip: Focus on sections most relevant to you.
Step 4: Review and Configure the Roll Order
Once you've selected your new option, the trade ticket will update to show both legs of the roll.
Verify the Legs: Ensure the order shows:
Leg 1: Sell to Close (your existing option).
Leg 2: Buy to Open (your new option).
Double-check the contract type (Call/Put), strike prices, and expiration dates for both legs.
Set the Order Type:
Limit Order: Highly recommended for options rolls. This allows you to specify the net credit (if you're receiving money) or net debit (if you're paying money) you're willing to accept for the entire spread. This gives you control over the execution price.
Market Order: Generally not recommended for multi-leg option strategies due to potential slippage and unfavorable fills.
Choose Time in Force:
Day: The order will be active only for the current trading day.
Good 'Til Canceled (GTC): The order remains active until it's filled or you cancel it.
Quantity: Ensure the number of contracts for the roll matches your existing position.
Step 5: Preview and Place Your Order
Before submitting, take a final look at all the details.
Preview Order: E*TRADE will provide a summary of your order, including:
The net credit or debit for the entire roll (e.g., "Net Credit: $X.XX" or "Net Debit: $X.XX").
Estimated commissions and fees.
The maximum potential profit and loss for the new combined position (if applicable for complex spreads).
Confirm and Place: If everything looks correct and aligns with your trading plan, proceed to place the order. E*TRADE will then attempt to execute the two legs of the roll as a single transaction.
Step 6: Monitor Your New Position
Once your roll order is filled, your old option position will be closed, and the new one will appear in your portfolio.
Review Confirmation: Check your order confirmations to ensure the roll was executed as intended and at your desired price.
Adjust Your Watchlist: Update any watchlists or alerts to reflect the new expiration date and strike price.
Continue Monitoring: As with any options position, continuously monitor the underlying asset's price, implied volatility, and time decay. Your exit strategy should evolve with your new position.
Frequently Asked Questions About Rolling Options on E*TRADE
Here are 10 common questions about rolling options on E*TRADE, with quick answers:
How to Roll Options When My Call is Deep In-the-Money (ITM)?
Reminder: Reading twice often makes things clearer.
When your call is deep ITM, you can roll it up and out. This means selling your current ITM call (locking in substantial profit) and buying a new call with a higher strike price and a later expiration date. This allows you to realize some profit while still participating in further upside.
How to Roll Options When My Put is Losing Money?
If your put option is losing money (e.g., stock price is rising when you expected it to fall for a long put, or falling when you expected it to rise for a short put), you can consider rolling it out to a later expiration date to give the underlying more time to move in your favor. For short puts, you might also roll down the strike to potentially collect more premium and move the breakeven point.
How to Roll a Covered Call to Avoid Assignment?
To avoid assignment on a covered call, you can roll it out (to a later expiration) or roll it up (to a higher strike price). This typically involves buying back your existing short call and selling a new one with a more distant expiration or a higher strike, giving the stock more room to run without being called away.
How to Roll Options for a Net Credit (Receive Money)?
You can roll for a net credit by selling an option that has more extrinsic value (time value) or is deeper in-the-money, and then buying an option with less extrinsic value or that is further out-of-the-money. This is common when rolling winning covered calls up and out, or rolling losing naked puts down and out.
How to Find the "Roll" Feature on E*TRADE's Platform?
On E*TRADE, you typically find the "Roll" or "Adjust" feature by navigating to your "Portfolio," finding the options position you want to adjust, and then looking for a "Trade" button, or by right-clicking on the position itself. This will usually open a pre-populated order ticket designed for rolling.
Tip: Reading with intent makes content stick.
How to Calculate the Breakeven Point After Rolling an Option?
The breakeven point after rolling depends on the specifics of your new position. For a rolled call, it's generally the new strike price plus the net debit paid (or minus the net credit received) from the roll. For a rolled put, it's the new strike price minus the net debit paid (or plus the net credit received).
How to Understand the Fees Associated with Rolling Options on E*TRADE?
ETRADE charges commissions per contract for options trades. When you roll an option, it's effectively two trades (a sell to close and a buy to open), so you'll pay the per-contract fee for both legs. ETRADE charges $0.65 per contract, which can be reduced to $0.50 if you make 30 or more trades per quarter.
How to Practice Rolling Options Without Using Real Money?
ETRADE offers a Paper Trading application (Power ETRADE Simulator) with real-time data and virtual money. This is an excellent way to practice rolling options and other strategies without risking your capital. You can access it through the E*TRADE website.
How to Get Help from E*TRADE Customer Service Regarding Options Rolling?
You can contact E*TRADE customer service by calling their main number at 800-387-2331. They have Options Specialists who can assist with specific questions about options trading and platform functionality. You can also utilize their online chat or secure message features.
How to Decide When Rolling an Option is a Bad Idea?
Rolling an option might be a bad idea if you're simply trying to avoid realizing a loss on a fundamentally flawed trade. If your original thesis is no longer valid, or if the underlying asset's prospects have significantly worsened, it's often better to close the position and take the loss rather than compounding it through repeated rolls and increasing transaction costs.
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