Trade Management
Rolling Out and Down
Learn how rolling a short put to a later expiration and lower strike changes the position, how to calculate the net credit or debit, and what to consider before making the adjustment.
What Does Rolling Out and Down Mean?
Rolling out and down is a type of option roll commonly used when managing a short put.
The existing put is bought back, and another put is sold with a later expiration date and a lower strike price.
Out = later expiration. Down = lower strike.
The trader closes the current short put and opens a new short put that gives the position more time while lowering the price at which shares could be assigned.
The Two Changes
Roll Out
Move the position to a later expiration date. This adds more time to the new option contract.
Roll Down
Move the short put to a lower strike. This lowers the price at which the seller would be obligated to purchase shares if assigned on the new contract.
A Simple Example
Suppose you have an open cash-secured put with a $70 strike and the underlying has moved closer to that strike.
Current Position
New Position
In this example, the new put expires seven days later and has a strike that is $3 lower.
Calculating the Roll Credit
To understand the economics of the roll, compare the amount paid to close the current option with the premium received from selling the new option.
Example Roll
Buy to Close
$87
New Premium
$123
Net Roll Credit
$36
$123 received − $87 paid = $36 net credit
This is a simplified example and does not include commissions, contract fees, taxes, or other transaction costs.
Why Lower the Strike?
Lowering the strike changes the assignment obligation of the new short put.
Old Strike
$70
New Strike
$67
Lower Obligation
$300
One standard equity option contract normally represents 100 shares. Moving from a $70 strike to a $67 strike reduces the potential share purchase obligation from $7,000 to $6,700 before considering premium.
The lower strike can improve the potential assignment price, but it does not eliminate downside risk if the underlying continues falling.
Why Add More Time?
Moving to a later expiration gives the new option more time. The additional time can also provide more option premium than a similar strike with less time remaining.
More time is not free.
Extending the expiration means the trader remains exposed to the underlying for a longer period. The additional premium should be considered alongside the additional time and risk.
What Happens to the Original Trade?
Rolling out and down does not erase the result of the original option.
When the original put is bought back, that position is closed. Any profit or loss on that option is realized. The newly sold put is then a separate open position.
Old Put
Closed
Roll
Credit or Debit
New Put
Open
Track Total Premium Across the Position
When a position is rolled, looking only at the premium from the newest option can give an incomplete picture.
Simplified Example
Original Premium
$75
Net Roll Credit
$36
Total Net Premium
$111
$75 original premium + $36 roll credit = $111 total net premium
Tracking the entire sequence helps show how much net premium has actually been collected across the position.
Rolling Out and Down Does Not Eliminate Risk
A lower strike and additional premium can improve certain characteristics of the position, but the new short put still carries downside and assignment risk.
Example
If a put is rolled from a $70 strike to a $67 strike and the underlying later falls to $55, the lower strike helped reduce the potential purchase price, but the position can still face a substantial unrealized loss or assignment obligation.
Rolling changes the position. It does not make downside risk disappear.
Evaluate the New Put as a New Trade
One of the most useful ways to evaluate a potential roll is to temporarily ignore the fact that you already own the current position.
Ask yourself:
“If I did not already have the current trade, would I be comfortable selling this new put today?”
If the new strike, expiration, delta, premium, or assignment obligation would not make sense as a new trade, rolling into it simply because the current position is under pressure deserves careful consideration.
What to Review Before Rolling Out and Down
New Strike
Would you be comfortable purchasing 100 shares at the new strike if assignment occurs?
New Expiration
How many additional days are being added to the position?
New Delta
How does the new option compare with the type of setup you would normally consider?
Cost to Close
How much must be paid to close the current short option?
New Premium
How much premium will the new option provide?
Net Credit or Debit
What is the actual difference between the new premium and the closing cost?
Total Position Premium
How much net premium has been collected across the complete trade sequence?
Underlying Risk
Has anything materially changed about the underlying or the reason the original trade was opened?
Rolling Out and Down and the OptionEdge Approach
The OptionEdge approach treats rolling out and down as one possible management choice, not something that must be done every time a cash-secured put moves toward the strike.
Improve the Strike
A lower strike can reduce the price at which shares could be assigned under the new contract.
Keep Time Controlled
Consider how much additional time is actually being added instead of extending the position indefinitely.
Know the Net Credit
Look at the cost to close, new premium, and total premium across the entire position.
The new position still needs to make sense.
A roll should not be used simply to avoid dealing with a position that moved against you. The new trade should still fit the strategy and the amount of risk you are prepared to accept.
Common Rolling Out and Down Mistakes
Thinking the roll removes the loss or result from the original option.
Looking only at the premium received from the new put.
Ignoring the amount paid to close the existing put.
Rolling to a lower strike without being willing to accept assignment there.
Adding too much time simply to create a larger credit.
Assuming a credit automatically makes the new trade attractive.
Rolling repeatedly without reconsidering the underlying position.
Ignoring the total amount of capital that remains at risk.
Key Takeaways
Rolling out and down closes the existing short put and opens another put with a later expiration and lower strike.
Rolling out adds time to the position.
Rolling down lowers the strike and therefore lowers the potential assignment price on the new put.
The net roll credit or debit is the new premium received minus the amount paid to close the old option.
The result of the original option does not disappear when the position is rolled.
Tracking total net premium across the complete position provides a clearer picture than looking only at the newest option.
A lower strike does not eliminate downside or assignment risk.
The new put should make sense as a new trade before a roll is entered.