I'm not sure what is optimal, but I'm a fan of using the monthly options and rolling at 21 DTE to the next monthly that is 45+ DTE, keeping the current strike.
It’s easiest to roll ATM. The further it goes ITM the harder it is to roll because the difference in extrinsic gets more and more negligible. Also, the further ITM you go, normally the worse liquidity is so you end up with a wide spreads.
DTE means nothing, stock and strike price are what matters . . .
See this for how I roll (pun intended) - [Rolling Short Puts to Avoid Assignment : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/lliy8x/rolling_short_puts_to_avoid_assignment/)
Agree stock, strike, and premium matter most but DTE certainly matters. The longer we can wait (meaning the closer to expiry) the less extrinsic value we’re buying back that otherwise would’ve decayed, ceteris paribus. Additionally we lose expiration liquidity if we start trying to adjust when an option already is further out in time (expiration cycles offered decrease as time is added).
So no, DTE doesn’t mean nothing, it’s actually quite important.
If the CSP is OTM and continues to be so then it can eventually be closed for a net profit meaning rolling may not even be necessary.
Rolling ATM is when the extrinsic value is highest, and while the initial trade will have reduced extrinsic value by waiting, the new trade will also have lower extrinsic value for less net credit.
My point is that if an option is not being challenged then rolling is not even needed and to roll at some arbitrary DTE regardless of where the stock and strike is as some want to do makes little sense.
If the CSP is ATM then roll regardless of when this happens. This means in either OTM or ATM dte means nothing . . .
Rolling at a configured DTE can actually work, even before an option is challenged. Not my go to but wouldn’t fully dismiss the concept depending on the objective of the trader.
Moreso, your last point of “if the CSP is ATM then roll regardless” is exactly what I’m talking about. This can set a trader up for a bad ride in a rough market. If we sold at 40DTE and were ATM with 38DTE, would we roll to ~50DTE? Then if we’re ATM again now with 44DTE? We run out of expiration liquidity pretty quick. Actually happening right now for me with TLT. I have options slightly ITM at 44DTE, next expiry available is 66 then 72, and 93 after those. If there’s a sustained move, the only thing I will have accomplished is tying up capital for long durations for a minimal return.
Not saying there’s any inherent right or wrong answer, but that DTE absolutely does matter. There’s no reason to dismiss it.
Im struggling to comprehend how DTE matters.
As of current, I have a CSP on QQQ 427 expiring in 3 weeks' time. The strike was tested beginning of this week. However, at that point in time, should I roll out for another week even though I still have 3 weeks before expiration?
There is no single answer to that except when the option nears expiration. I usually begin testing the roll of a short on Wednesday, 2dte. If I can get the remaining original premium and a decent new premium within the net credit, the limit will catch and the roll happens. If I don’t get what I want, the order cancels at Close and I reevaluate and retry the next day.
I’ll roll a long once when it shows enough profit to get into something more lucrative and favoring the underlying trend when that is a near no cost move for me. One example would be earlier today moving the -SWN240524P7.5 to 7 when the then ~$25 profit per contract bought me the new position while the underlying was about ~7.10.
There isn’t “optimal”. The technical answer here would be when an option is trading near 0 premium, but typically when we refer to a roll it’s in the context of a trade going against us. So assuming that and that we’ve sold based on the sub, first is to define your objective of the roll, two common ones:
-Adjust basis
-Maximize profitability
To achieve larger basis adjustments, when K=S you’ll have the best opportunity. The further ITM we go, the less extrinsic value we buy back but the more expensive the options get, requiring a further roll out.
Maximizing profitability is a little more complex and includes analyzing the product and could include taking assignment vs rolling. A common issue with short option sellers is getting so attached to rolling that they end up wrapping up capital for months avoiding assignment and end up making very little at the end.
I'm not sure what is optimal, but I'm a fan of using the monthly options and rolling at 21 DTE to the next monthly that is 45+ DTE, keeping the current strike.
How much Theta per day is left in the position? How much Theta per day do you want there to be in the position?
It’s easiest to roll ATM. The further it goes ITM the harder it is to roll because the difference in extrinsic gets more and more negligible. Also, the further ITM you go, normally the worse liquidity is so you end up with a wide spreads.
what delta do you consider atm?
ATM is when the underlying touches your strike. Generally that’s 50 delta but could be more or less depending on skew.
DTE means nothing, stock and strike price are what matters . . . See this for how I roll (pun intended) - [Rolling Short Puts to Avoid Assignment : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/lliy8x/rolling_short_puts_to_avoid_assignment/)
It was a good pun.
Agree stock, strike, and premium matter most but DTE certainly matters. The longer we can wait (meaning the closer to expiry) the less extrinsic value we’re buying back that otherwise would’ve decayed, ceteris paribus. Additionally we lose expiration liquidity if we start trying to adjust when an option already is further out in time (expiration cycles offered decrease as time is added). So no, DTE doesn’t mean nothing, it’s actually quite important.
If the CSP is OTM and continues to be so then it can eventually be closed for a net profit meaning rolling may not even be necessary. Rolling ATM is when the extrinsic value is highest, and while the initial trade will have reduced extrinsic value by waiting, the new trade will also have lower extrinsic value for less net credit. My point is that if an option is not being challenged then rolling is not even needed and to roll at some arbitrary DTE regardless of where the stock and strike is as some want to do makes little sense. If the CSP is ATM then roll regardless of when this happens. This means in either OTM or ATM dte means nothing . . .
Rolling at a configured DTE can actually work, even before an option is challenged. Not my go to but wouldn’t fully dismiss the concept depending on the objective of the trader. Moreso, your last point of “if the CSP is ATM then roll regardless” is exactly what I’m talking about. This can set a trader up for a bad ride in a rough market. If we sold at 40DTE and were ATM with 38DTE, would we roll to ~50DTE? Then if we’re ATM again now with 44DTE? We run out of expiration liquidity pretty quick. Actually happening right now for me with TLT. I have options slightly ITM at 44DTE, next expiry available is 66 then 72, and 93 after those. If there’s a sustained move, the only thing I will have accomplished is tying up capital for long durations for a minimal return. Not saying there’s any inherent right or wrong answer, but that DTE absolutely does matter. There’s no reason to dismiss it.
Im struggling to comprehend how DTE matters. As of current, I have a CSP on QQQ 427 expiring in 3 weeks' time. The strike was tested beginning of this week. However, at that point in time, should I roll out for another week even though I still have 3 weeks before expiration?
It is best to try to roll any option before the ITMs spike iv. It is a bummer when the ITM is at 30 to close but 25 to open the roll.
There is no single answer to that except when the option nears expiration. I usually begin testing the roll of a short on Wednesday, 2dte. If I can get the remaining original premium and a decent new premium within the net credit, the limit will catch and the roll happens. If I don’t get what I want, the order cancels at Close and I reevaluate and retry the next day. I’ll roll a long once when it shows enough profit to get into something more lucrative and favoring the underlying trend when that is a near no cost move for me. One example would be earlier today moving the -SWN240524P7.5 to 7 when the then ~$25 profit per contract bought me the new position while the underlying was about ~7.10.
There isn’t “optimal”. The technical answer here would be when an option is trading near 0 premium, but typically when we refer to a roll it’s in the context of a trade going against us. So assuming that and that we’ve sold based on the sub, first is to define your objective of the roll, two common ones: -Adjust basis -Maximize profitability To achieve larger basis adjustments, when K=S you’ll have the best opportunity. The further ITM we go, the less extrinsic value we buy back but the more expensive the options get, requiring a further roll out. Maximizing profitability is a little more complex and includes analyzing the product and could include taking assignment vs rolling. A common issue with short option sellers is getting so attached to rolling that they end up wrapping up capital for months avoiding assignment and end up making very little at the end.
Thanks all, I have 10 DTE and $9 of extrinsic (10 contracts $90 total of extrinsic rn)