Today on Know Your Options, Liz & Jenny discuss rolling defined risk trades. They explain how there is a sweet spot for rolling defined risk.
When you roll a trade, you’re keeping the dream alive. At tastylive, we usually look to keep the same strikes and roll out in time. It is important to remember that since rolling is a defensive strategy, we are locking in losses and opening a new trade. This is why we always try to roll for even or a small credit. If we cannot do so, we won’t roll the trade. Rolling for a debit decreases your original profit potential, and your probability of profit is most likely low, so it makes for a lose lose scenario.
In this episode, Liz & Jenny look to roll their LEN poor man’s covered call. LEN is also experiencing a dividend soon, so they double check their risk of assignment.
When it comes to options, additional assignment risk near dividend distributions only applies to ITM calls that have less extrinsic value than the actual dividend. If you think about it from the call owner’s perspective, it makes sense for them to give up their extrinsic value to exercise the option, because the amount they are giving up will be made up by receiving the dividend.
Since OTM puts give you a rough idea of the extrinsic value left in ITM calls, traders can check the pricing of the OTM put on the same strike as their ITM call. If the value is equivalent to or just under the amount of the dividend, the short call will be at risk of being assigned before the ex-dividend date.
To eliminate this risk, the trader can roll the ITM option out in time until the extrinsic value exceeds the amount of the dividend. It’s important to remember this, because in many cases rolling out to the next expiration cycle could still leave the ITM call at risk. Liz & Jenny end up rolling their 38 call in OCT to a 39 call in NOV, creating a standard debit call spread. They eliminate their potential dividend risk doing so, and help to keep their dream alive.
Tune in for a great discussion on rolling defined risk trades and avoiding dividend risk!
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.
More like this
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastyfx, LLC (“tastyfx”) is a Commodity Futures Trading Commission (“CFTC”) registered Retail Foreign Exchange Dealer (RFED) and Introducing Broker (IB) and Forex Dealer Member (FDM) of the National Futures Association (“NFA”) (NFA ID 0509630). Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances as you may lose more than you invest.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2026 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.
Your privacy choices