Options Strategies: Can You Roll a Trade Until Successful?

yeah let's go to market measures role until right so who is instrumental in doing this today well my all what I think it was a group idea but the concept is you know can you roll I you know in options you can extend your duration by rolling a trade and you can do this for a small credit often can you just roll a losing trade until you're right so let's find out who will often roll trades or the losing legs of trades that's the first thing that we want to do right is roll up the untested side as a way to extend duration and give ourselves more time to be right so we're just keeping the dream alive a roll only makes sense though when our assumptions of the underlying have not changed meaning if you're still bearish on something and it's gone higher and you're rolling up the untested side which if the stock is going higher which would be the put side you're rolling up the puts closer to the stock price always under hedging you're only doing this if your assumption hasn't changed right and we bolded assumptions because that's what this is all about right guys and written it the the reason why you would make a roll is because your assumptions haven't changed so what are these are some shows yeah so if you have a trade on so you have a strangle on you get blowing out to the call side and you think the stock is gonna go higher rolling the call is not going to make any sense correct that's correct next slide Linda as a side effect of rolling is this excuse me a side effect of rolling is that it continues to lock up capital now locking up capital is still the original capital that you were using it doesn't it doesn't typically use more capital I understand there could be a couple of hundred dollars one hundred two hundred dollar difference by rolling up that put because the credit you received doesn't make up for the amount of strikes that you're moving it up but for all intents and purposes if if a strangle was using fifteen hundred bucks and you roll up the put side you're not gonna be using another fifteen hour bucks no but like James so what we're doing is we're looking at this we have the buying power reduction mmm in our whole account right and let's see assumption we made here is exactly what that's saying is it's locking up that original capital and as you'll get into with the study yeah hampering my ability to generate occurrences meaning if you have a smaller sized account and you're using you know 50 60 70 percent of your account you're not gonna have that money to use someplace else yeah so you might have to wait longer for you know for this to play out and is it worth it it's a little bit better off Reda point sure so the flip side the coin is if your assumption and is about all about cyclicality does it make sense to keep rolling a losing position as opposed to taking the loss and reallocating correct let's go to the next slide find out what comes up so you took a look at the study you look at gold s py TLT yep so we did five years high IV entry points 45 days expiration which is what we generally that's our time range that we generally test one standard deviation strangles so butlered if you want to explain the three scenarios that we looked at all right so we sold the strangle when IV rank goes above 50 that's the high v entry point and we recorded three different scenarios so we either held it until expiration and recorded the piano win or lose or if it was a loss we would roll we would roll the tested side out to the next month 45 days using the same strike and we did that for a maximum of six months so we wanted to have a bit of a cut off who didn't want to hold the trade forever so we put a six month time limit on that yeah put something means six months for us I mean six months is an eternity right I mean that's basically into perpetuity if you were asking me nice words actually in the next scenario if we have a loser we roll the same strike out 45 days and we just keep rolling it forever hoping that someday we can scratch it or better so that's that's a key there because a lot of times I think that answers a question that we get a lot for emails so okay I'm gonna keep rolling this thing until I'm right I'm gonna bite here I trade it small from the beginning I'm using it as a learning process here when do I get out of this thing like what am I looking for I mean if you've if you if you've taken something that you were looking to make let's just say for argument's sake 150 bucks you sold this thing at $150 and a best-case scenario maybe it's an earnings play or something like that you were looking to make you know 130 140 120 bucks now you're defending it right you keep rolling it because the stock has gone against you or it's moved outside of its range what am I looking to do I'm gonna make a scratch I mean I'm that's that's what it's very that's especially if I've had enough money in my account to put on other trades I'm not gonna make a scratch good point let's go the next slide let's first look at GLD and TLT - underlines that have exhibited some cyclicality in recent days and that's that's for sure I mean unlike the market and buy them our market I mean the equity market like thee even the ESPYs SP y IWM the triple Q's they've been parabolic in one way right so we picked these because if the assumption was sick locality and maybe you were assuming cyclicality in these products we wanted to look at what right these two look at the results but if you were playing on sick locality you would think that TLT and GLD would be a better scenario than it was an SP right so I mean we were talking about this when we were setting up this study it's how do you test how do you test this and how do we pick the underlying so what we decided was we would look at underlyings that showed sick locality in the past and then we'd also show what happens in an underlying or that you just have a parabolic move one way you just have one direction market and how does that work with the role concept show all sides of it very good yeah so in TLT if you held till expiration you you'll gain 1,900 bucks is that what say number of trades at 20 trades you rolled for six months because that's the time frame that we used right number of trades it was 16 different trades and if you rolled what is it so how could the expiration so what that's showing is that rolling for six months you're then tying up the Capitol defending that trade rolling out and hoping to be right so then you're actually you missed four of the opportunities that we had in our study and then rolling for perpetuity you know perpetually mm-hmm you're then missing an additional three that's why it's down to 13 I got you so so you actually wow you really went you went pretty far on this you're saying hey I need to have that money to use that's opportunity missed ya did it hamper me and these are these are a lot of rolls in some cases wow that's pretty cool so basically here because of the cyclic ality it really didn't hinder you at all tying up the money is that is that is that the what I'm seeing here for the for the one which patria yeah definitely four so she was 10 bucks right 15 bucks right exactly that's pretty cool yeah it's a cyclical if your assumption cyclicality and you then maybe you should roll if you if you have a losing position you know and you're assuming your assumption cyclicality I mean the market accommodated you here at TLT so let's check out GL Dean yeah sure next slide I so here you've got held until expiration got 2009 the number of traits 213 so you have less why why why did you have why the last one was sick IV just high IV occurrence in jail D hmm the last one was twenty got it and then sixteen number of trades role for six months twenty eight hundred bucks twenty eight hundred bucks if you had had the buying power to use for other plays Norfolk aged 12 well that's pretty cool so in this case you never had to roll more than six months that's why it's the same century in six much of the same gotcha so that's why the rolled six months in the rolled perpetually is the same price got it I'm held to expiration was less why I believe that one trade that you missed out on you probably made some money on right here I was a held to expiration was less money than rolled for six months was alone right no no you ever right so you missed one trade and that trade was a loser you missed one tray that you saw as luck would have it yes yeah by making a scratch or better on the trade that you rolled you luckily miss the high IV opportunity didn't work out sure awesome awesome it yeah you know what that's you really took it to it level here this is this is great research that's really very cool let's go to bed I think every knock is a too but everyone says I like to prop you up over make you make you feel good good for you so how these results compared to s py which was not I'm and again I haven't looked at this which is not as cyclical from just my own experience training for the last year or the last six months for this study as TLT and GLD I'm going to assume that those results are going to be worse that's probably fair assumption let's remember the timeframe that we're looking at so I believe the study goes back to Mart when does when do we start explain we'll explain it starts around March 2007 we're starting about the low of the market and you know this markets really been quite strong over the past five years so how I would say that let's see how the strategy fared out in a one directional market let's take a look good next slide so if you held till expiration nine hundred thirty two dollars positive number of traits ten if you rolled six months to a five dollar loss and if you rolled forever you're looking at almost an eleven thousand dollar loss a number of traits - okay so you go over this form you guys it's one trade that gets rolled you know you have your first trade and then the second trade which I believe is March of 2009 you're selling that as it says on there you're selling the one standard deviation strangle you've got a nice buffer on each side because you had high volatility but then you know you keep rolling it and this is as the markets coming out of this kind of you know it's bottomed out and it's it goes on this you you know this terror we've seen for the last five years and that's really your assume we're saying for the study we're saying no no market assumption just keep rolling it got it so these really is based on your assumptions here so if you rolled this throughout a really bullish market you're looking at a small loss compared to the other two that were cyclical and you were looking at a nice gain you're looking at around if my memory corrects me is around a twenty two hundred dollar gain on the other two and you're looking at a $500 loss on here is that is that am i reading this correctly wow that's pretty cool because if you have a number of occurrences and you're doing different products you're gonna assume that some are gonna be cyclical and a few are not I mean I'm gonna assume that more are gonna be cyclical in a normal market than one way on the other one so it goes back to your original question you're like you said how long should we how long should we roll you know you just roll forever if your assumption hasn't changed or you know at some point you just cut it off and when you look at this maybe you know at some point maybe you're not rolling forever mm-hmm you're you know you're assuming cyclicality but I we see what can happen if you just roll in indefinitely so you got in the bond note the SP why trade from three from from March of oh nine is still being rolled currently at $11,000 11100 sent me two dollars SP y as exhibit says such limited signal now you've had a little bit of a Down move today so I'm assuming that that loss would be a little bit less we're doing this a little hyperbole in the sense like we're mean we're selling the same strike so we write what you're selling you're still rolling like an 80 call in the spy Wow and it's you're really it's you really are eating that loss well well so you're really basically just rolling stock at this point in SP y awesome and even though it's moves from from a tea you know basically to in SP why you talking about a hundred ninety six seven dollars you have a small loss comparatively speaking I mean with you rolling every six months that's pretty cool that's a good job I you guys it's a real good job of you guys

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Id: UISaPg2kk7s

Length: 12min 59sec (779 seconds)

Published: Tue Jul 08 2014