What You Need to Know About a Vertical Roll

We never really want to have to vertical roll our positions from the current month to the next, but sometimes it is necessary and is all part of trading for profit. Vertical rolling your position can be a very effective tool for managing a somewhat unexpected upturn or downturn in the market buying you time for the market to correct.  Here’s what you need to know if you are contemplating a vertical roll.

You want to vertical roll before your position gets into the money and certainly before it gets seriously into the money.  Many of us are trading with an iron condor or collar strategy in which we buy and sell a put or a call position to manage and limit the risk of our trades.  When vertical rolling your position, you will make money if the strike price is out of the money, or if the strike price is in the money, but has not blown through your short and your long legs.  Once that occurs you are paying to vertical roll which will buy you time, but I’d rather make money on a vertical roll than have to pay.  So my advice is to watch the market very carefully and if you think a vertical roll is the right strategy to get you out of danger, make your move before you’re in the money.  When deciding to vertical roll, I look at a number of factors, not the least of which are:  How many days left till expiration?  Do you think the market is headed up or down?  Where is the RSI?  What’s in the news and how could that effect the market?  Don’t forget to take a look at your exit strategy and your money rules.  Stay calm!  Option trading is a long term strategy to make very good cash flow, so be patient, use the tools you’ve learned to deal with fluxuations in the market, be okay with making less some months than others.  Don’t get greedy and don’t run scared.  Stick with your strategy and you will prevail!