Traders,

Tomorrow’s Options Theory blog will chronicle the pros and cons of rolling short puts from one month to the next. Here’s a teaser: Rolling is an essential management technique for cash flow traders using naked puts. It involves exiting the current naked put that is close to expiration while simultaneously opening a new longer-term naked put.

Here are the pros:

-It extends the trade duration, allowing you to maintain exposure to the underlying. This ensures you’ll be there to collect once the stock rises.

-If the roll is executed for a net credit, it reduces the position’s risk while increasing the potential profit.

-If you’re rolling down to a lower delta, it also improves your probability of profit. For instance, you might buy back a 50-delta put while selling a 30-delta put.

Catch tomorrow’s Options Theory blog for a deeper dive.

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