Master the Art of Rolling Options on Merrill Edge: A Comprehensive Guide
Are you an options trader looking to manage your positions effectively, adapt to changing market conditions, or simply extend your trading horizons? Then understanding how to "roll" options is an absolute game-changer. It's a fundamental strategy that allows you to adjust existing options contracts rather than simply letting them expire or closing them out at a loss. On Merrill Edge, a robust platform for self-directed investors, rolling options is a streamlined process once you understand the steps.
Ready to take your options trading to the next level? Let's dive in!
Step 1: Understand Why You're Rolling Your Options
Before you even log into your Merrill Edge account, it's crucial to clarify your objective. Why are you considering rolling this particular options contract? Rolling isn't a one-size-fits-all solution; it's a strategic move with various motivations.
Sub-heading: Common Reasons to Roll Options
Extend Time: Perhaps your option is close to expiration, but the underlying asset hasn't moved as anticipated, or you believe it still has potential. Rolling out to a later expiration date gives your trade more time to become profitable.
Adjust Strike Price: Market conditions may have shifted significantly.
If you're short a call option and the stock is running past your strike price, you might roll up to a higher strike to reduce the risk of assignment and capture more premium.
If you're short a put option and the stock is falling significantly, you might roll down to a lower strike to avoid assignment at an unfavorable price or to collect more premium.
Take Profit and Re-establish: Sometimes, your options trade is profitable, but you want to maintain exposure to the underlying asset while collecting additional premium. You can close your profitable position and open a new one further out in time and/or at a different strike.
Manage Losses: If a position is moving against you, rolling can help mitigate losses by collecting more premium (in the case of short options) or by moving to a more favorable strike price.
Understanding your "why" will dictate how you execute the roll.
Step 2: Ensure Your Merrill Edge Account is Ready for Options Trading
Before you can execute any options trades, including rolls, you need to ensure your Merrill Edge account is approved for options trading.
Sub-heading: Options Approval Levels
Merrill Edge, like most brokers, has different options approval levels based on your trading experience, financial situation, and stated investment objectives. Rolling options often involves multi-leg strategies, which typically require a higher approval level than just buying or selling single options.
Check Your Approval Level: Log in to your Merrill Edge account. Navigate to your account settings or profile, and look for "Trading Privileges" or "Options Approval." If you're unsure, it's best to contact Merrill Edge customer service directly. They can guide you through the process if an upgrade is needed.
Understand Margin Requirements: Many options strategies, especially those involving short options (like rolling a covered call), utilize margin. Ensure you understand Merrill Edge's margin requirements and that your account has sufficient buying power.
Step 3: Identify the Option to Roll on Merrill Edge
Once you're logged in, you need to find the specific options contract you intend to roll.
Sub-heading: Navigating Your Portfolio
Log In: Go to the Merrill Edge website and log in to your account.
Access Your Portfolio: Look for a "Portfolio" or "Holdings" tab. This will display all the assets in your account, including your existing options positions.
Locate the Option: Find the specific options contract you wish to roll. It will be listed under the "Options" section of your holdings. Pay close attention to the symbol, strike price, and expiration date.
Step 4: Access the Options Chain and Initiate the Roll
This is where the actual mechanics of rolling begin on Merrill Edge.
Sub-heading: Using the Options Chain
Click on the Underlying Asset: From your portfolio, click on the underlying stock or ETF associated with the option you want to roll. This will typically take you to a detailed quote page for that asset.
Navigate to the Options Tab: On the asset's quote page, you'll find various tabs like "Overview," "Charts," "News," and usually, an "Options" or "Options Chain" tab. Click on this.
Understand the Options Chain: The options chain is where you'll see all available options contracts for that underlying asset.
Expiration Dates: At the top or side, you'll see a list of available expiration dates. Select the current expiration date of the option you're rolling to view its details.
Calls and Puts: The chain is typically divided into Call options (usually on the left) and Put options (usually on the right).
Strike Prices: The central column will list the strike prices.
Pricing Data: You'll see bid, ask, last price, volume, and open interest for each contract. Pay attention to the bid/ask spread, as this impacts the cost/credit of your roll. Merrill Edge often highlights in-the-money and out-of-the-money options with different colors (e.g., green for in-the-money, red for out-of-the-money).
Sub-heading: Setting Up the Roll Order (Multi-Leg Strategy)
Rolling an option involves closing your existing position and opening a new one simultaneously. This is executed as a multi-leg order, usually a "Roll" or "Buy-to-Close/Sell-to-Open" (or vice versa) combination.
Select Your Current Option: Find the specific option you want to roll (e.g., a short call or short put that's expiring soon).
Initiate a "Roll" or "Strategy" Order: Merrill Edge's trading platform (especially Merrill Edge MarketPro) is designed to facilitate complex options strategies. Look for an option to "Roll" or "Create a Strategy" directly from the options chain or your holdings.
If a "Roll" button is available, this is often the easiest path.
If not, you'll build a custom multi-leg order:
First Leg (Closing): Select "Buy to Close" for a short option (like a covered call) or "Sell to Close" for a long option. Choose the exact contract you currently hold (same strike, same expiration).
Second Leg (Opening): Select "Sell to Open" for a new short option or "Buy to Open" for a new long option. This is where you choose your new strike price and new (further out) expiration date.
Step 5: Define the New Option Parameters
This is the strategic heart of the roll.
Sub-heading: Choosing Your New Expiration and Strike
New Expiration Date: Scroll through the expiration dates on the options chain and select the one that aligns with your revised time horizon. Remember, more time generally means more premium (for short options) or more cost (for long options).
New Strike Price:
Rolling Out: If you're simply extending time, you might keep the same strike price, but select a further out expiration.
Rolling Up (for short calls): If the stock has risen and your short call is now in-the-money, you might roll up to a higher strike price to reduce the risk of assignment and potentially collect more premium.
Rolling Down (for short puts): If the stock has fallen and your short put is in-the-money, you might roll down to a lower strike to reduce assignment risk and collect more premium.
Rolling for a Debit or Credit: As you adjust the strike and expiration, observe whether the combination order results in a net credit (you receive money) or a net debit (you pay money).
A credit roll means you're collecting more premium than you're paying, which is often desirable for income strategies.
A debit roll means you're paying to extend or adjust the position, which might be acceptable if it significantly improves your risk profile or potential for profit.
Step 6: Determine the Order Type and Price
Just like any other trade, you need to specify how you want your roll executed.
Sub-heading: Selecting Order Type
Merrill Edge typically offers standard order types for options. For rolling, you'll most likely use:
Limit Order: This is highly recommended for rolling options. A limit order allows you to specify the exact net price (credit or debit) you're willing to accept for the entire multi-leg roll. This gives you control and helps avoid unfavorable fills.
Market Order: Avoid using market orders for multi-leg options strategies like rolls. The bid-ask spread on individual legs can be wide, leading to unexpected and potentially unfavorable execution prices.
Sub-heading: Setting the Limit Price
Merrill Edge's trading interface will often display the current "natural" price (the combined bid/ask of the two legs) for your roll.
For a Credit Roll: You'll want to set your limit price at or below the natural credit you see. Start with a more aggressive (higher) credit and be prepared to adjust if it doesn't fill.
For a Debit Roll: You'll want to set your limit price at or above the natural debit you see. Start with a more aggressive (lower) debit and be prepared to adjust.
Monitor the market closely as you place and manage this order. Options prices can move rapidly.
Step 7: Review and Confirm Your Roll Order
This is a critical step to prevent costly mistakes.
Sub-heading: Double-Checking Everything
Before you hit "Place Order," carefully review all the details of your roll:
Underlying Asset: Is it the correct stock/ETF?
Old Option Leg: Is it the correct action (Buy to Close/Sell to Close), strike, and expiration for your existing position?
New Option Leg: Is it the correct action (Sell to Open/Buy to Open), new strike, and new expiration?
Quantity: Are you rolling the correct number of contracts? (Usually, you roll the same number of contracts, but sometimes you might adjust the size).
Net Price: Is the displayed net credit or debit acceptable to you?
Order Type: Is it a Limit order?
Commissions: Merrill Edge offers $0 online stock, ETF, and option trades, but a $0.65 per-contract fee applies. For a roll (two legs), this means you'll pay $1.30 per rolled contract. Always be aware of the total cost.
Confirm Margin Impact (if applicable): If you're opening a new short option or adjusting a spread, ensure you understand the margin implications. Merrill Edge will typically show you the estimated margin requirement.
Step 8: Place and Monitor the Order
Once you've thoroughly reviewed everything and are confident in your trade, proceed to place the order.
Sub-heading: Order Status and Adjustments
Place Order: Click the "Place Order" or "Confirm" button.
Monitor Order Status: After placing the order, go to your "Orders" tab or "Order History" to monitor its status. It will likely show as "Pending," "Working," or "Filled."
Adjusting Your Limit Order: If your limit order isn't filling, the market might have moved away from your desired price. You can typically modify or cancel your existing order and resubmit it with a slightly adjusted limit price to improve your chances of execution. Be careful not to chase the market too aggressively.
Step 9: Post-Roll Portfolio Review
After your roll order is filled, take a moment to confirm the changes in your portfolio.
Sub-heading: Verifying Your Holdings
Check Your Holdings: Go back to your "Portfolio" or "Holdings" section.
Confirm Old Position Closed: The original options contract should no longer be listed (or its quantity should be zero).
Confirm New Position Opened: The new options contract with the updated strike and expiration should now be visible in your holdings.
This final check ensures that the roll was executed as intended and your portfolio accurately reflects your new options position.
10 Related FAQ Questions
How to check my options approval level on Merrill Edge?
You can typically check your options approval level by logging into your Merrill Edge account, navigating to your account profile or settings, and looking for sections like "Trading Privileges" or "Options Trading." If you can't find it, contact Merrill Edge customer service for assistance.
How to find the options chain for a specific stock on Merrill Edge?
After logging in, go to your portfolio or use the search bar to find the underlying stock symbol. On the stock's quote page, look for an "Options" or "Options Chain" tab to view all available contracts.
How to determine the best strike price and expiration date when rolling options?
The "best" strike and expiration depend entirely on your market outlook, risk tolerance, and the original purpose of your trade. If you're extending time, a further expiration with the same or a slightly adjusted strike might be suitable. If you're adjusting for market movement, you'll move the strike up or down accordingly.
How to calculate the net credit or debit of an options roll?
The platform usually calculates this for you when you set up a multi-leg order. Manually, it's the difference between the premium received from selling the new option and the premium paid to buy back the old option (for short options), or vice-versa for long options.
How to place a multi-leg options order on Merrill Edge?
Merrill Edge's trading platform typically has a "Strategy" builder or "Roll" function directly from the options chain or your holdings. You'll select the legs you want to buy/sell and the platform will group them into a single order.
How to avoid a market order when rolling options on Merrill Edge?
Always select a "Limit" order type when executing a roll. This allows you to specify the exact net credit or debit you are willing to accept, giving you control over the execution price.
How to modify or cancel a pending options roll order on Merrill Edge?
Go to your "Orders" tab or "Order History" section. You should see your open orders, and typically there will be an option to "Modify" or "Cancel" the order.
How to understand Merrill Edge's options trading fees for rolling?
Merrill Edge charges $0.65 per options contract. Since a roll involves two legs (closing one contract and opening another), you will generally pay $1.30 per contract rolled (e.g., if you roll 5 contracts, the fee would be $1.30 * 5 = $6.50).
How to manage potential assignment risk when rolling short options?
Rolling typically helps manage assignment risk by moving the expiration further out or adjusting the strike price away from the current market price. However, assignment is always a risk for short options, especially American-style options, and can occur at any time up to and including expiration.
How to get help from Merrill Edge customer service for options trading?
You can contact Merrill Edge customer service via phone (their contact numbers are typically available on their website under "Contact Us" or "Help & Support") or through their secure messaging system once logged in. They can assist with account inquiries, platform navigation, and trade execution issues.