Manage Your Option Risk: Options Rolling Tool is Coming!

Moo Options Explorer wrote a column · Sep 27, 2023 02:19

We're thrilled to announce the launch of our latest feature on moomoo called Option Rolling!

This powerful tool is designed to help you manage your open options positions more efficiently by adjusting your position with a later or earlier expiration date or by modifying your option strike price in an option contract.

So, what exactly is Option Rolling?

Rolling an option refers to the process of closing an existing option position(and realizing any gains or losses) whilst simultaneously entering into a new one. The new position has the same underlying assets but a different strike price and/or expiration date.

This strategic move allows market participants to adjust their options positions in response to a constantly changing market, and can be used for a variety of reasons, such as when traders want to avoid carrying a position into expiration but also want to maintain a similar strategy, or perhaps the outlook of the underlying has changed since opening the position, or when there's need to extend the duration of a strategy.

What are the different ways to roll when rolling options?

Roll up

Rolling up an option involves closing an existing options position while simultaneously opening a new one with the same expiration but at a higher strike price.

Roll down

Rolling down an option involves closing an existing options position while simultaneously opening a new one with the same expiration but at a lower strike price.

Roll backward

Rolling backward on an option involves closing an existing options position while simultaneously opening a new one with the same strike price, but with a sooner expiration date.

Roll forward

Rolling forward on an option involves closing an existing options position while simultaneously opening a new one with the same strike price, but with a later expiration date.

Roll up/down and forward

Rolling up/down and forward on an option involves closing an existing options position while simultaneously opening a new one at a higher or lower strike price, and with a later expiration date.

Manage Your Option Risk: Options Rolling Tool is Coming!

Please note that moomoo Option Rolling features are not available for Option Level I and II clients.
Clients with Option Level III can roll up and down, but cannot roll forward or backward.
Clients at Option Level IV have access to all rolling functions. The option level can be viewed by referring to the path shown in the following image.
Options trading and level are subject to eligibility requirements.

How do rolling options work? (Using roll-up as an example)

Traders may choose to roll options for various reasons, including locking in profits, extending the expiration period, adjusting strike prices, or managing risk. In essence, rolling options can serve as a vital tool for investors to adapt their strategies to the ever-evolving fluctuations of the markets.

In order to introduce how option rolling works, here is an example of rolling up an option:

Example of rolling up

Let's assume you have sold a call option for the underlying asset of company Y, with an expiration date set for October 10th, with a strike price of $5 along with a $0.2 premium fee.

All of a sudden the price for company Y's stock rises to $6 with the premium increasing to $0.6, this results in an unexpected loss of $0.4 or $40 when using the multiplier.

If no action is taken, then you may suffer even greater losses if company Y's stock continues to rise.

In this case, how can you roll up the position and what changes will it bring to your position?

Firstly, you would buy back the originally sold option, with a strike price of $5, and take on the $40 loss.

Then, you can sell another call option of company Y's stock with a strike price of $7 and earn a premium of $0.3. This is how you can use rolling up an option to your potential advantage.

These orders are submitted simultaneously and would be executed at a single net price.

If the price of company Y's stock price is below $7 on October 10th, then you will earn a premium of $0.3, which helps offset some of your previous loss of $0.4, resulting in a net loss of only $0.1 or $10 when using the multiplier.

Therefore, using the rolling-up options strategy can potentially decrease your investment's losses. However, just remember that rolling options doesn't ensure a profit or guarantee against a loss. You may also end up compounding your losses.

Of course, there are other ways to optimize this strategy, such as rolling up the position for a longer period of time, which could have the potential to turn a net loss into a profit over time.

Example of rolling up and forward :

Buy back the original call option with a strike price of $5 and take the $0.4 loss. Then sell another call option of company Y's stock with a strike price of $7 for October 17th and earn a premium of $0.6 (longer term options generally earn a higher premium).

However, by rolling out further, the duration is extended, which can also increase risks as there's more time for the underlying security's price to move unfavorably.

Let's dive deeper into the final outcome of this strategy even further.

How do I roll an option in the moomoo app?

1. Go to the Accounts tab.

2. Select the options position you'd like to roll and tap Roll.

3. Select the leg(s) you'd like to roll and tap Trade.

With the Option Rolling feature now live on moomoo, you have even more flexibility and control over your options trading strategies.

If you're looking to adjust your exposure in contrast to changing market conditions, consider checking out the Options Rolling feature.

✔️ Easily roll options with just one click

✔️ Have the ability to better manage certain risks when options trading

How do you like this new feature? Share your thoughts with us.

Want to learn more about option？

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Don't forget to follow us to stay up-to-date on all things related to options education. "Your options education partner: Moo Option Explorer"

Disclaimer:

The examples provided are for illustrative purposes only and are not intended to be reflective of the results you can expect to achieve and are not recommendations or endorsements of any particular investment strategy.

Options trading entails significant risk and is not appropriate for all customers. It is important that investors read Characteristics and Risks of Standardized Options (https://j.us.moomoo.com/00xBBz) before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.

Supporting documentation for any claims, if applicable, will be furnished upon request.Moomoo does not guarantee favorable investment outcomes. The past performance of a security or financial product does not guarantee future results or returns. Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.

This content and the information available within the moomoo app should not be relied upon as a primary basis for any investment decision. Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk. All investing involves risk, including the potential loss of principal, and there is no guarantee or assurance that the use of any tools, features, or data provided on the moomoo app, or any investment strategy or approach discussed herein will result in investment success or reduce investment risk.

All contents such as comments and links posted or shared by users of the community are the opinion of the respective authors only and do not reflect the opinions, views, or positions of Moomoo Financial Inc., Moomoo Technologies, any affiliates, or any employees of MFI, MTI or its affiliates. Please consult with a qualified financial professional for your personal financial planning and tax situations.Please consider that users will have different risk profiles, financial understanding, financial objectives, investment time horizons and tolerance for potential losses and they should consider these factors when comparing performance, advice or recommendations from other users.

Moomoo is a financial information and trading app offered by Moomoo Technologies Inc.

In the U.S., investment products and services available through the moomoo app are offered by Moomoo Financial Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC)and a member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).

This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal.

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