# Rolling honestly

**OPT-19 · Core Options · Core**

**Lesson question:** Why does a new credit not erase an old loss?

Original fictional examples; educational writing, not live market data, orders or production approval.

## By the end

- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.

**Prerequisites:** OPT-F01, OPT-F02, OPT-F03, OPT-F04

A roll closes an existing position and opens another. It creates two records: the result on the old trade and the economics of the new one. Net cash from the combined order can conceal that distinction.

A later expiry or extra premium is not itself a repair of the original thesis.

## Understand the mechanism

The new contract changes strike, duration, obligations and sensitivity. Additional credit often accompanies additional time or risk. Costs, taxes and assignment considerations can differ by account.

Evaluate the new position as though starting today rather than requiring it to rescue the old one.

## Walk through the process

Record close and open transactions separately, then net them only for cash flow. Recalculate maximum risk where defined and stress where not. State why the new exposure is attractive on its own.

Avoid using rolling to turn a planned short-term trade into indefinite risk.

## Contract and decision boundary

Terminal examples use simultaneous intrinsic realization of all stated legs, before unspecified costs. Actual American exercise, assignment, early liquidation and broker handling can create different interim cash needs. These fictional comparisons are education, not orders or personalized investment advice.

## A worked example

A fictional option was sold for one point and is bought back for three, realizing a two-point loss. A different option is then sold for two points.

Across all three cash flows the net is zero, but the account now has an open short option liability. It has not recovered the realized 200-dollar loss economically merely by receiving new cash. The chart is a cash ledger, not a profitability chart.

## Graph: Rolling honestly—worked comparison

**Horizontal:** Initial sale / old close / new sale  
**Vertical:** Cumulative cash (USD), not total wealth

Fictional data from the written example. The chart organizes the comparison; its shape is not a forecast.

Complete numerical data are embedded in `scripts/options-strategies/OPT-19.js` and displayed as an accessible table in the HTML lesson.

## What would invalidate the reading?

A trader labels a roll 'no loss' because it collected a credit, ignoring the old realized loss and the new liability.

## Check your understanding

### Does selling the new option for two erase the old two-point realized loss?

**Answer:** No.

**Why:** It creates a new obligation and separate future result.

### What is the critical failure to avoid?

**Answer:** A trader labels a roll 'no loss' because it collected a credit, ignoring the old realized loss and the new liability.

**Why:** Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome. **Critical risk check.**

## Takeaway

Return to the question: Why does a new credit not erase an old loss? State the observed facts, the assumptions and the failure condition separately.

## References and provenance

The cited references support definitions and conventions. The teaching prose, tickets and numerical scenarios are original; they are not attributed as historical market observations.

- [OCC Options Disclosure Document](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document)

- [OIC Strategy Reference](https://www.optionseducation.org/strategies/all-strategies-en)