Rolling Credit Spreads: John Napolitano, explains how to roll a credit spread into selling a naked option. He describes a scenario where a trader has a bear call spread (a type of credit spread) and decides to roll it into another month to avoid a market-moving event. This is a common strategy used by traders to manage their risk.
Adjusting Trades: John’s personal rule of allowing himself to make one adjustment to his trades. He warns against tweaking trades too much, as it can lead to confusion and a lack of clear strategy. John calls this as having an “octopus” of trades, with too many different elements to manage effectively.
Becoming More Bullish: If a trade exceeds expectations, such as a stock breaking out to new highs, John suggests buying another call option. This creates a ratio back spread, where the trader has one call option that can increase in value without limit, but still has some protection on the downside with the sold call option.
Risk Management: The importance of managing risk. Be aware of expiration dates and to understand which options are in the money and out of the money in their portfolio.