How to Roll Credit Spreads to Improve Your Chances of Success

We love to trade Credit Spreads to profit from short term stock price movements. But do you know how to adjust a losing Credit Spread to increase your chance of success?

Today SlashTraders will show you how to roll Credit Spreads to extend the expiration date while receiving extra credit then wait for the options to profit.

What Is a Credit Spread?

A Credit Spread is an options strategy where the income of a short option is larger than the cost of a long option. The two common Credit Spreads are Bull Put Spread and Bear Call Spread.

If our analysis expects a bullish Shopify stock movement, we can sell a Bull Put Spread:

  • A short Put near the market price.
  • A long Put at a lower strike price.
shopify bull put spread
Bull Put Credit Spread combines a short Put and a long Put to earn a premium.

A short Put Credit Spread receives a premium, and it will be profitable if the stock price does not fall before expiration. Even if the stock price goes down, the maximum loss is limited.

If our analysis expects a bearish Netflix stock movement, we can sell a Bear Call Spread:

  • A short Call near the market price.
  • A long Call at a higher strike price.
netflix bear call spread
Bear Call Credit Spread combines a short Call and a long Call to earn a premium.

A short Call Credit Spread receives a premium, and it will be profitable if the stock price does not rise before expiration. Even if the stock price goes up, the maximum loss is limited.

How to Roll a Bull Put Credit Spread?

If the stock price is down with less than 14 days to expiration, we can roll the losing Put Credit Spread to next month and wait for the stock price to rise in the future.

If SHOP's Bull Put Credit Spread is losing due to a drop in stock price while we maintain a bullish outlook, we can roll the contract forward.

shopify put spread loss
Stock price falls causing the Bull Put Spread to lose.

When rolling a Bull Put Spread, we need to close the existing Put Credit Spread, and sell to open a new Put Spread that expires next month.

roll shopify put spread
Close the current Put Credit Spread and sell to open a Put Spread that expires next month.

We can consider widening the Put Spread to increase the premium received to offset our existing losses.

shopify put spread next month
A longer date Bull Put Credit Spread that uses a longer time value and wider strike prices to offset the loss.

As a result, we create a longer date Bull Put Credit Spread with additional credit from longer time value and wider strike prices. Then we can wait for the SHOP stock price to bounce back in a bullish manner and profit from the new trade.

The Best Bottom Out Bull Put Spread Right Now

The Bull Put Spread Screener uses historical chart analysis to find bottom out stocks that have a high probability of an upward correction that we can sell Bull Put Spreads to profit from the dip.

We want to find heavily undervalued, bottomed out underlying that have a high probability of going up.

  • Long Days indicates the number of trading days since the most recent bullish signal, based on technical analysis. A small number means we can enter the trade at the start of the bullish trend.
  • Long Signal Price shows the recent dip based on technical analysis. We can be confident the stock price will not fall below this price level in the short term.
  • The fundamental analysis shows us the Fair Value of the underlying. Then it compares with the Last value to find the potential Upside. The higher the Upside, the greater the confidence of the stock being undervalued.

We can combine the 3 bullish signals in the screener to execute high probability bullish trades. The screener also helps us find high Return on Capital 0.50 delta ATM Bull Put Spreads.

bull put spread screener
We sort the stocks by Long Days to find the start of bullish trends, then find undervalued stocks with Upside.

Then we can use the Spread Details to find the ATM Bull Put Spreads with the respective Return on Capital.

Let's pick the highest probability and high return Bull Put Vertical Spread entry points.

By combining Long Days and Upside, out of all bullish stocks that started within 2 trading days, FB is extremely undervalued with 97% upside. So it has a high probability of a bullish trend.

fb bull put spread screener
FB is undervalued and trending up.

The FB price chart shows it reached a low point at Long Signal Price of $169 2 trading days ago, and has been bullish ever since.

fb chart analysis
FB reached the low Long Signal Price around 2 trading days ago, and has been bullish since.

Considering FB is heavily undervalued, we can be confident of a bullish outlook.

We can sell a FB Bull Put Spread option that expires next month. If the Meta stock price does not fall before expiration, we can profit 103% from the trade.

fb bull put spread roc
A FB Bull Put Vertical Spread that expires next month has a maximum return of 103%.

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How to Roll a Bear Call Credit Spread?

If the stock price is up with less than 14 days to expiration, we can roll the losing Call Credit Spread to next month and wait for the stock price to fall in the future.

If NFLX's Bear Call Credit Spread is losing due to a rise in stock price while we maintain a bearish outlook, we can roll the contract forward.

netflix call spread loss
Stock price rises causing the Bear Call Spread to lose.

When rolling a Bear Call Spread, we need to close the existing Call Credit Spread, and sell to open a new Call Spread that expires next month.

roll netflix call spread
Close the current Call Credit Spread and sell to open a Call Spread that expires next month.

We can consider widening the Call strike prices to increase the premium received to offset our existing losses.

netflix call spread next month
A longer date Bear Call Credit Spread that uses a longer time value and wider strike prices to offset the loss.

As a result, we create a longer date Bear Call Spread with additional credit from longer time value and wider strike prices. Then we can wait for the NFLX stock price to fall back to a bearish trend and profit from the new trade.

The Best Bear Call Spreads Right Now

The Bear Call Spread Screener uses chart analysis to find overvalued stocks with a high probability of a downward correction that we can sell Bear Call Spreads to open.

We want to find heavily overvalued underlying that have a high probability of going down.

  • The options screener uses fundamental analysis to calculate the Fair Value of the underlying then compare that with the Last value to find the potential Upside of the stock. When the Upside is less than -30%, we have high confidence in a bearish outlook.
  • Short Signal Price shows the topped out price from our technical analysis. So we know the stock price will not rise beyond this price in the short term.
  • Short Days indicate the number of trading days has passed since the last short signal. As soon as the short signal appears, there is a high probability of a bearish move.
  • We also need to avoid Ex-Dividend Date before options expiration. On one hand Ex-Dividend Date usually lead to rising prices and assignment. On the other hand, if you get assigned, you might need to pay dividends for shorting the stock.

Since we are strongly bearish about our trade, we can use -0.50 delta ATM Bear Call Spread to calculate Return on Capital. This gives us the highest return when we are right, and the lowest maximum loss if we are wrong.

So we can look at the screener for the best ATM Bear Call Spread ideas.

bear call spread columns
We sort Upside by descending order to find the most overvalued stocks, then use Short Days to find the most recent down-trending opportunities.

By combining Upside and Short Days, we see ENPH is one of the most overvalued stocks, and has a short signal 8 trading days ago. It doesn't have an Ex-Dividend Date coming up. So it has a high probability of a bearish trend.

bear call spread screener enph
We combine Upside and Short Days to find the ENPH as one of the best ATM Bear Call Spreads.

By checking the Enphase price trends, we confirm ENPH reached a high point at $220, similar to the Short Signal Price in our Bear Call Spread list, 8 trading days ago, and has been bearish ever since. We expect ENPH to stay below Short Signal Price in the short term.

enph short signal price trend
ENPH reached the Short Signal Price $220 8 trading days ago, and has been bearish since.

We can sell an ENPH ATM Call Spread option that expires in 35 days. If the ENPH stock price does not rise before expiration, we have the potential to profit 86% from the trade.

enph atm bear call spread
An ENPH ATM Call Spread option that expires in 35 days has the potential to profit 86% from the trade.

Now you don't have to panic when a Credit Spread goes bad. We can roll the existing options contracts to the future and wait for the stock price to follow our expectations.

But we need to be careful that widening a Credit Spread increases the maximum loss of the trade. So we only roll a Credit Spread when we remain confident of the stock analysis.

Now you know how Bull Put Spreads work, you can use the Bull Put Spread Screener to find the best bullish entry points.

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