When we roll-out a cash-secured put trade, we are spanning 2 contract cycles. This article will detail how to enter and close our trades into our trading logs to best reflect the results over multiple time frames.

 

What is rolling-out an ITM put strike?

This is where we buy back (buy-to-close or BTC) the short put as expiration approaches and immediately sell the same strike put option in the next contract cycle.

 

When to consider rolling-out an ITM strike?

If a strike is in-the-money as expiration approaches, we may opt to roll the trade rather than close and exit the current option position. Reasons to take this approach include:

• There is no upcoming earnings report in the next contract cycle
• The underlying security still meets our system requirements (fundamental, technical and common-sense screens)
• The rolling calculations do meet our stated initial time-value return goal range

 

Difference between rolling and existing an ITM put strike as expiration approaches

When we roll the option, we BTC (buy-to-close) the near-term strike and STO (sell-to-open) the next contract same put strike. If we decide to close the ITM strike and simply exit the trade, we only close the current put trade and look to establish a new cash-secured put trade (usually) with a different security at the start of the next contract cycle. Let’s use a real-life example with NVDA to demonstrate a rolling example.

 

How to enter our rolling trades into our trading log

Our current contract month trade is completed as initially structured. The initial time-value return is the same as the final time-value return. The current value of the underlying security is entered into our spreadsheet (trading log) as the only adjustment entry. The rolling-out trade is then continued in the next contract cycle where the current market value (ending value at expiration of the expiring contract) is entered, and the net option credit is also entered with the next expiration date. The net option credit consists of the new premium less the cost-to-close debit from the previous contract. This is shown in the upcoming screenshots.

 

Real-life example with NVIDIA Corp. (Nasdaq: NVDA)

• 8/20/2021: NVDA trading at $208.16
• 8/20/2021: STO the 9/24/2021 $200.00 put at $5.65
• On expiration Friday, 9/24/2021, NVDA is trading at $199.00, leaving the original short put strike ($200.00) in-the-money.
• BTC cost is $1.10
• STO the next month $200.00 put is trading at $5.00
• A decision is made to roll rather than close the trade

 

Initial trade return on option (ROO)

 

 

The Trade Management Calculator shows an initial return on the option of 2.91%, 29.48% annualized based on a 36-day trade. If exercise is allowed, shares would be purchased at a 6.63% discount from the price of NVDA when the put sales was initiated.

 

How is rolling-out the ITM strike managed with our BCI Trade Management Calculator?

The original put trade is considered closed by entering only the current price of the stock on expiration Friday ($199.00).

 

 

Final calculations prior to rolling the ITM strike

 

The spreadsheet will reflect the final time-value return to be the same as the initial time-value return (2.91%) as well as the same total net income of $565.00 for the 1 contract.

 

Entering the rolled-out trade in the next contract cycle

We enter the following stats into the next contract cycle:

• Stock price: $199.00
• Strike price: $200.00
• Net premium: $3.90 ($5.00 – $1.10)

The spreadsheet will reflect the following initial calculations: 

The calculator shows the following stats:

• A 22-day return of 1.99% (brown cell)
• An annualized return of 33.00% (green cell)
• A breakeven price point of $196.10 (yellow cell)
• A purchase discount of 1.46%, if exercised (pink cell)

 

Discussion

We consider rolling an ITM put strike when the security still meets all system criteria, and the calculations align with our stated initial time-value return goal range. The initial trade is closed reflecting the initial time-value return and the current security price and net option credit is entered into the next contract cycle.

 

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Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Hello sir!

I stumbled upon your YouTube videos and have been hooked. I have tried to understand options trading for some time now, and it was because of you that I finally was able to get the basics down. For that, I appreciate your help!

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Money Show Orlando live event

October 30th – November 1st, 2022

OMNI ORLANDO RESORT AT CHAMPIONSGATE

Visit Alan, Barry and members of the BCI team at Booth # 415

 

Sunday, October 30, 2022, at 5:00 pm – 5:45 pm EDT
Covered Call Writing: Multiple Applications Based on Current Market Conditions

Monday, October 31, 2022, at 4:30 pm – 6:30 pm EDT
Selling Cash-Secured Puts: Detailed Start-to-Finish Six-Part Program*

 

Masters Class

Comprehensive Course on Selling Cash-Secured Puts

Detailed start-to-finish 6-part program

This presentation will provide all the information, with real-life examples, necessary to master the strategy of selling cash-secured puts. The program is divided into 6 sections:

• Section I:
  • Option basics
• Section II
  • Traditional put-selling
• Section III
  • PCP (wheel) strategy
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• Section V
  • Ultra-low-risk put/Delta strategy
• Section VI
  • Ultra-low-risk put/Implied volatility strategy

This presentation was developed to benefit both beginner and experienced option traders and will provide all the information needed to initiate the strategy and elevate returns to the highest possible levels.

45-minute presentation

Covered Call Writing: Multiple Applications Based on Current Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

• Normal to bull markets
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A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

Registration link and more details to follow.

 

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