To The Moon

Option rolling - Roll the option to prevent them from getting exercised, while not losing out.

Often, we find ourselves selling out-of-the-money cash secured puts and covered calls to generate some additional income, but ended up getting assigned or called off when the options get in-the-money. It may be alright if you have the intention to buy in more of the underlying stocks, or have the intentionto sell off the stocks. But if you don’t, then maybe ‘rolling’ the options is a good way to prevent assignment/called off.

Using $Apple(AAPL)$as an example, supposed you have sold a put at strike 177.50, expiry 20211231, and it is at risk of being assigned, you can actually ‘roll the option’ by buying back the same put at the cost of 1.07, and sell another put at strike 175, expiry 20220114 (2 weeks later) at a premium or 2.43. In this case, you give yourself more time (2 weeks) for AAPL to rise back in price (hopefully) while earning additional premium of 1.36 (2.43 less 1.07, assuming zero commission). If 2 weeks later, the situation is still unfavourable, you can ‘re-roll’ again, to prevent option assignment.

Similarly, if you have sold a call at strike 180, expiry 20211231, and it is at risk of being called away, you can buy back the same option at the cost of 1.58, while sell another callat strike 182.5, expiry 20220114, at the premium of 2.8, and earn additional premium of 1.22 (2.8 less 1.58). If the stock is still at risk of being called off 2 weeks later, you can re-roll again too.

The general idea here is that if we don’t take in time value, we can always ‘win’ in option trading. Hope it helps!