Rolling In The Money Puts Decision-Making Process

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I receive a lot of emails asking about how to decide on rolling sold in the money puts. This is a strategy article for FullyInformed Members that looks at the decision-making process for rolling sold in the money options.

Here is a good example of a recent email on rolling sold in the money put options.

“Teddi; I always have trouble deciding what to do when puts I have sold fall in the money. You always seem so calm and self-assured. How can I get the confidence to make a decision quickly on whether to roll my in the money puts or accept assignment of shares. How do you decide because you make it look easy and I find it perplexing. Any ideas? Thanks, Fred”

I think perhaps the best way to answer this question is to look at my most recent Aflac Stock trade.

Previously I had indicated that I was selling puts on Aflac Stock at the $50 strike. If you review the Aflac Trades so far this year you can see the most recent trades at the $50 put strike. This link will take you to the 2013 trades on Aflac Stock.

As regularly readers known I sell puts on stocks I would own if assigned. This does not mean I want to be assigned, but if something dramatic happened and I ended up having to be assigned, then I would take the assignment and work the trade to end up being exercised out of the shares. Recently Aflac Stock fell below $50 and left my naked puts in the money. Here is the decision-making process I use to determine whether I should accept assignment on shares, roll naked puts forward or roll them forward and down to lower strikes. Let’s take a look.

Aflac Stock Trades for 2013

On January 29 I sold the $50 puts on Aflac Stock for .30 cents with just two weeks left to options expiry. I thought this was a good trade considering the risk of assignment I felt as low. Following the earnings release Aflac stock fell and pulled back harder than I would have thought despite consistent earnings. Rather than sell further puts I waited for the stock to attempt to bottom which I believe it tried on Thursday and Friday. On Friday Feb 16 the Feb 16 options I had sold at $50 were to expire. The decision then had to be made whether to roll them out at the same put strike, accept assignment of shares or roll the sold puts out and lower.

Aflac Stock Trades 2013Aflac Stock Decision-Making

Making a decision on rolling puts that have fallen in the money is often a simple process. I always want to do it for a net profit and I always want to provide the best risk versus reward scenario that I can. Last I never forget the original goal. In the case of Aflac Stock it was to sell puts but if at all possible, not hold shares.

By keeping that in mind, it becomes easy to make a decision as to what should be done next.

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