What is option rotation?

Definition and Examples of Options Rolling

Options rolling occurs when you sell a current option contract and buy another contract on the same underlying security with a higher strike price and the same expiration date. Options rolling allows you to secure your profits while potentially creating an opportunity to earn more money and limit your risks.

How Options Rolling Works

Options rolling involves selling your current contract to take profits and buying another contract that is further out of the money, which reduces overall risk. You can execute options rolling by selling your current contract and buying another contract with a higher strike price, thus minimizing overall risk.

Alternatives to Options Rolling

“Rolling” is the umbrella term for both “rolling up options” and “rolling down options.” To roll down options, you would sell a current option contract and buy another contract on the same underlying security with the same expiration date but at a lower strike price. You can also execute options rolling by closing the current options position and opening a new position with the same type of options contracts and the same underlying security.

What It Means for Individual Investors

If you’ve purchased options to complement your existing investment portfolio, you may consider rolling your options contract to increase your profits. You can limit your risks by buying options contracts that are further out of the money. Since options trading is inherently a risky investment strategy, rolling an options contract can be helpful in managing the overall risks associated with options contracts.

Source: https://www.thebalancemoney.com/what-is-an-options-roll-up-5204195