Rolling Over Short Options to the Next Week – Best to do on Friday or Monday?

In the past when we were trading only Monthly options, one of the decisions we needed to make on Fridays was whether it was better to buy back out-of-the-money options on Friday and sell new Monthlys on that day or let them expire worthless and sell new Monthlys on Monday. Most of the time we decided that it was a toss-up because the cost of buying back the options on Friday (and paying an extra commission) was usually about the same as the decay in the Monthly options over the weekend.

The story is entirely different now that Weekly options are available – we have determined that it is overwhelmingly better to roll over Weekly options on Friday than it is to let them expire worthless and sell new options on Monday. Last Monday, for example, the at-the-money SPY options could be sold for an average of $.15 less on Monday than they could have been sold for on Friday. (The Monthly at-the-money SPY options decayed about $.10 over the weekend).

The cost of buying back out-of-the-money options on Friday usually is about $.02 or $.03. This is an extremely low cost, and makes even more sense for investors like us who trade at thinkorswim (no commission is charged at thinkorswim for buying back options for $.05 or less).

On average, near-the-money options sold for $.10 less on Monday than they could have been sold for on Friday. Again, it is better to pay the small price to roll over on Friday than it is to wait until Monday. Since these Weekly options have only a few days of remaining life, the decay over the weekend is significant.