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Re: Roll over short put vertical trade You are correct: A rolled trade of an ITM position (such as AMZN put spreads) into next week (called a "vertical roll" trade) does 2 things: a) Closes this current week's ITM position AND b) Opens a new position for next week (or any other time frame you want) expiration. Why do this? A: it cuts down on the cost to close the ITM position, sometimes even earning a credit for the roll -- depending on which new thesis you decide is appropriate for next week. What's required to do this? A: A new thesis for the stock price for next week. If you get it right, you can not only erase the cost of the vertical roll but even make a profit for the new week. Example: I closed the AMZN 2440/2335 put spreads for 22 May AND sold the AMZN 2440/2335 put spreads for 29 May (for a debit). If AMZN > $2440 by next Friday the new position will expire worthless. Further, you can also sell the same number of short call spreads to turn the position into a net win (such as selling the 2500/2505 call spreads), assuming these expire worthless as well. It's all about having confidence in your thesis for the stock for the new time period. There are times when I'm closing a short ITM call spread position near the bell and I roll it over to a short put spread position because I believe the stock will rise in the following week. I also do this because a lot of times, Monday trading will open with a huge gap up and so selling short put spreads on a Friday will automatically begin making money right away. What happens when I'm wrong and the stock opens lower on Monday? When I'm sure the stock won't rise (as my thesis assumes), then I immediately sell the opposite spreads and wait to see which way the stock goes, then push the ITM side to OTM territory. Example: Rolled the 2440/2335 AMZN short put spreads. Stock opens down 10 points. I immediately sell the same number of 2440/2445 call spreads for a chunk of change, and then wait to see which side of the 2440/2445/2440/2335 iron condor needs to be pushed to OTM territory by Friday (and hope that the premium received for selling the 'opposite' spreads is enough to make the push). I may have written this too fuzzy for you; if so -- ask me some questions! Cheers, Sandie |
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Msg # | Subject | Author | Recs | Date Posted |
6009 | Re: Roll over short put vertical trade | DZAVALA | 0 | 5/24/2020 9:03:17 PM |