#531 - Close For Small Profit OR Roll For Small Credit?

Episode of: The "Daily Call" From Option Alpha

< Back to The "Daily Call" From Option Alpha
Mar 7, 20194m
532
#531 - Close For Small Profit OR Roll For Small Credit?
Mar 7 '194m
Play Episode

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about making the decision between closing for a small profit or rolling for small credits. This is again, a question that came out of our Facebook community, so if you have questions and you want to send in there, you can do that. You can also submit them at optionalpha.com/ask. But someone said, “Let’s say you’re a week or two out from expiration and you are nowhere near your profit target, but you are showing a small profit. Is it better to close the trade and take the profit or roll the trade for a small credit and try for a full profit in the next month?” This one's on the wire. This is an interesting question because it's ultimately a judgment call of what you want to do. Here's how I would think about it though. I think obviously, you could close for a profit and remove the position and bank a win. That seems like the default answer and obviously, in this case, if you're not at your profit target, but you’re showing a profit, that’s easy to do.

The question on deciding to roll for a credit actually comes up when I think about this as asking myself where my position is next month for next month’s portfolio. If I have a position now that's kind of iffy and maybe it's a bearish position, do I want to roll another bearish position into next month’s portfolio? Let's say that next month’s portfolio was already super bearish and tilt. We already have 45 different bearish positions. Not that that would be the case. I’m just trying to use an exaggerated example, so it proves the point. But let's say next month’s portfolio already has 45 bearish positions. Do I really want to roll this position to the next month just so that I have an opportunity to take more profit off of the trade when that would create more unbalance in the next expiration period for me? Now, if this was a bullish trade that I had, maybe a put credit spread and I’m looking towards the next month and I've got too many bearish trades on, I need some bullish trades, well, then yeah, in this case, maybe rolling to the next month (because it's a bullish position that helps balance the next month’s portfolio) is maybe ultimately a better decision to make, so in that case, maybe I do roll for a credit and try to maintain the position.

Another thing I would think about is what other positions do I have in that same ticker for the next month. If I’ve got two positions in the current expiration month and I’ve got three in the next expiration month, do I really want to have five positions when I roll my existing two to the next month? Is that something that would take me over-allocated for that ticker? Would I allocate too much money? Is that too much risk for that type of position? I think some of these little ancillary things, you have to think about and consider. Ultimately, it's not a bad situation that you’re in. It’s either take profit now or hope to take a potentially bigger profit later. I think it's a function of what the portfolio looks like the next month. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

0:00 / 0:00