Rolling options spreads is a challenging task. Many times, I roll due to expectations or my fear, and it ends up being a mistake, like the last trade I opened a few days ago, and it was a too-soon roll.

When trading SPX, I usually sell Iron Condors. I started trading extremely conservative strikes (1 – 6 delta). One reason for that was to avoid rolling as much as possible. So I can leave the trade on until the very last moment.

 

 

Since I trade around 2 DTE trades, rolling is rare. In this case, I let the market touch my short option strike, and then I will try to decide what to do.
Here is my exit plan:
 

1. Let the trade expire worthless for a full profit. There is no management and no stop-loss orders.

 

2. If the market goes down and touches or even breaches my strike, I will check why it happened. What is the catalyst for it? If I can’t find any and the decline is a pure nonsensical hiccup (Wall Street is full of them), I probably do nothing (unless it is expiration day and only a few minutes to expiration (15-30 minutes). If it is close to expiration, I will roll calls down to convert the trade into an Iron Fly (a short call strike is the same as a short put strike).

 

3. If the market keeps sliding and both put strikes get in the money, I close the short call for 0.05 debit and roll the put spread into 5-10 DTE and the same strikes and the same width as long as it is a credit trade. If it is a small debit, I still may take it because I will sell a new call spread against it to offset the cost of the debit roll.

 

4. If rolling for credit doesn’t work and selling calls doesn’t offset the cost, I start widening the strikes, going from $10 wide spread to $15, $20, or similar. I may also convert the call spread into put spread and vice versa.

 

However, note that my trades are 2SD (2 standard deviations), so if the market goes down 2 SD without any catalyst, I may decide to leave it as is (unless expiring) or roll to the same strikes and same width, still attempting to make it a credit trade, because such decline is too unusual. There is a significant chance that the market will bounce the next day or the next few days. It happened to me a few times already (on put as well as on the call side), so I will not roll as much as I used to due to this fact.

As I said above, rolling trades are not an easy task, and there are no set rules that you can use every time. Sometimes, you will roll a trade, turning it into a disaster.

So the question is – roll or leave it and take a loss? My philosophy is to avoid taking a loss as much as possible. So I roll. But when rolling, you must do your math and think about the results and consequences. Are you making it worse (digging a deeper hole) or improving your trade? Sometimes, I start rolling even for debits if the trade is better off rolled than closed for a significant loss. I have a few trades from the past that cost me $400-$1000 to roll, but the risk was $5,000 or even $10,000 (the spread was 50 to 100 wide spreads. I am okay with taking a $1,000 loss rather than a $10,000 loss if the trade expires in the money for a complete loss.

What if I cannot roll because I do not have the buying power to do so or for any other reason?

In this case, I let the old trade expire as is but opened a new “box” trade to kick the can down the road to get time to deal with the trade later when I have enough money.
What is a “box” trade? The box trade is when your short call strike is at the same strike as your long put, and your long call is at the same strike as your short put:
 

Example:
 

4760 short call – 4760 long put
4770 long call – 4770 short put
 

What does this do to you? Well, you keep the trade alive, and you collect the entire width premium minus fees. In the example above, you will collect a $1000 premium, and your BP requirement will only be between $50 and $100. I usually open this with 45 DTE; if I am stressed, I may choose more DTE – 150 or 200 DTE. Why? The most important thing is time. I gain time without hitting my portfolio and can think about what to do next. Also, based on the market conditions, I started rolling calls higher to widen the box into an Iron Fly or even Iron Condor. I roll the entire structure (which will not impact the collected premium as it will be either a small credit or debit) and then start widening the spreads. If I was unsuccessful (the market was moving too fast, for example), I stopped adjusting and let it go while opening a new box.

So, these are my strategies for rolling the trades. Deciding which one to use depends on the market. If there is a legitimate panic (bear market, crisis, etc.), I might convert puts to calls or roll to lower strikes, etc.; if there is no catalyst, I may do what is described above.

Here is my latest trade with the rolls and my journal of why and what I did. Maybe it will help you better understand my process (read the section below in the spreadsheet under the “Notes” section.).