Rolling a position is very simple to do. You just buy a further out expiration and sell out your existing one. The hardest part of rolling a position is actually making the decision to execute the trade, and to do that, you have to understand why you are doing it.
One of the most difficult things to master as a trader is to admit when you are wrong, which means you have to realize losses. Losses are a part of the business, so if you don’t learn to do this, you will not be a trader for very long, which brings me back to the decision to execute a sell-out of your existing position. When deciding, ask yourself, “Am I just putting off the inevitable or is there strong evidence that my approach just ran out of time?”
To exemplify this process, let’s consider my position in GoPro (GPRO). Presently, I am holding the 11/14 82/86 call spread, but GPRO has had some tough times this past week, highlighted by the fact that ahead of its Dec. 23 lockup expiration, GPRO has filed to sell $800M worth of shares through a follow-on offering.
The company plans to offer $100M worth of new shares and sell the rest on behalf of existing holders. This has put pressure on the stock price. There was a big “fight” at the $74.00 level and it held.
So, even though GPRO has some issues now, my bullish stance on the stock has not gone away, yet, I have a problem – I didn’t buy enough time. I accept that as a valid reason to roll out of my position, to try and recoup some of my lost premium from my original signal and reestablish a bullish position.
I called for the 12/5 vs. 11/14 82/86 call vertical roll for a debit of $0.90 or better.
#####
