← IntermediateLesson 11 · 4:07
When do you close, roll or hold?
Summary
You can set your exits before a trade and know what each of the four costs: take profit and give up the rest, cut and make the loss real, roll and carry the same risk for longer, or hold and keep every outcome open. You can also see why a net credit on a roll is cash in, not profit.
Key terms
- take-profit level
- A gain, set before the trade, at which you close it.
- loss limit
- A loss, set before the trade, at which you close it; a price can jump past it.
- rolling
- Buying back an old option and selling a new one with a later date, a new strike, or both.
- net credit
- When a pair of trades brings cash in overall.
- net debit
- When a pair of trades sends cash out overall.
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
Check yourself
Answer each question to see why the right answer is right.
1. You sold the XYZ $100 put for $341. When is the best time to decide your exits?
2. With seven days left and XYZ still at $100, you buy the put back for $165 and keep $176. What did taking profit cost, and what did it end?
3. Five days after you sold, XYZ falls to $94 and today's line says you are down $350, past your $341 limit. You buy the put back for $691. What is the cost of cutting here?
4. Instead, you roll: buy the old put back for $691 and sell a $100 put with 30 more days for $807, a net credit of $116. Is that $116 a profit?
5. You hold the put to the last day and XYZ ends at $85. What happens?
Finished the video and the quiz? .