Tag: rolling options

30% Monthly Gains in Double Diagonal Results

I’ve been trading variations of a Double Diagonal option position, rolling daily for 14 months. It’s been a bumpy ride, but overall very positive. For this trade I used SPX index options, the most liquid option on the S&P 500 Index. The trade requires four options- a short and long put, and a short and long call. For a single contract 4-leg position, the total capital requirement is usually a bit less than $10,000, without the use of any margin, but varies day to day. I’ve averaged just over $3000 profit a month per each single contract position, or 30% return per month. This is without any compounding.

I’ve written about this strategy in my article, Daily Double Diagonal Trade. I spent over a year previously testing and trading Daily Diagonal Puts of various expirations, and there are several write-ups on those topics on this website. However, this post is intended to focus in on results, and what I learned along the way.

Let’s take a look at results broken down month by month. I’ve split out the results for each leg of the contract, as well as the total return for the month. Note that the results are in dollars per contract, and as mentioned above the total position usually requires a little less than $10,000 of capital on any given day.

table of daily double diagonal results

If you look closely and do the math, you may see that on many months the four individual legs don’t add up to the total. This is because I didn’t always have a 1:1:1:1 ratio. As described in my strategy write-up, I sometimes reduced the amount of short option exposure, trying to find better ways, particularly in higher volatility environments. These results are averages per contract for the idividual legs and average per contract position for the total. So, if I had 3 longs and 2 shorts, I took the total P/L and divided by 3.

Some people have asked me why I chose to add calls to the earlier Diagonal Put strategy. From the results, you can see that the calls have actually made more than the puts when you add the long and short positions together. I noticed this early on in my data, so I just kept going. Initially, this was just a trial, but it started so well, I just kept going.

We can also look at this as a graph, which makes the numbers more obvious.

Monthly Double Diagonal Results

You might notice a few things that pop out from the graph. First, the best month of all was the first one I traded this- February 2025. The month was a fairly calm month with almost every day staying within the daily expected move. I also traded with mostly 2 DTE short option positions, maximizing short gains. I thought I had found the best trade ever.

The worst month was just two months later, April 2025, which started with President Trump’s “Liberation Day,” where he announced 200% tariffs on most of the world. The market dropped almost 20%, often in chunks. I took hit after hit with each big down day. Then near the end of the month, the president announced that he was delaying tariffs for a month and the market went up 10% in a single day, the largest one day gain ever for the stock market. My short call position got obliterated. I realized that this trade wasn’t as easy as I had thought.

Over time, I adjusted my approach, with a goal to reduce the losses in worst case scenarios while trying not to give up too much upside. I tried lots of adjustments, both in real trades in dozens of different back-tests. Since that April debacle, I’ve had two negative months, November and December, which I chalk up to getting too cute in trying to set up a robust trade for big moves that didn’t happen as I expected. In March of 2026, I was on track for a month that could have been the best one yet, despite the war in Iran, until the cease fire at the end of the month caused a huge one day market gain that wiped out most of the month’s gains.

But, to a large extent, much of what has happened is just how this trade goes. Most of the time, the market is fairly quiet and this trade does well. But some of the time the market gets volatile and there is only so much you can do to avoid losses. I like to think that the changes I’ve made to my mechanics would let me do better in another situation like April of 2025, but I’m not sure I’d have the discipline to stick to a plan.

Overall, this trade has done extremely well for me.

Cumulative profits from Daily Double Diagonal Results

For every 4-legged contract position I’ve made over $40,000 in 14 months. Assuming that each contract position required $10,000, the trade has turned $10,000 into $50,000. As in all trading results, it goes without saying that past performance is no guarantee of future results, so take all of this as just one piece of data.

I resisted the urge to try scaling up to compound by earnings. I’ve tried to mostly just keep much of my earnings in cash to build my buffer. I’ve spent some of my gains, and also used some to fund other trade strategies in my diversified accounts. I fully expect to see future drawdowns of over $10,000 a contract, but I take some comfort that the longest period of negative results from peak to peak is four months so far. At any point in the cumulative profit graph, the total is higher 5 months later. Given the length of time for these results, it’s safe to say that I can’t draw statistical significance from that observation, only that this is true for this data set.

Finally, I’d love to claim that I quintupled the size of my accounts because of this trade, but I didn’t because this was only a part of my overall position. Other positions didn’t do nearly as well, and much of my portfolio is in cash equivalents like BIL, the T-bill ETF, that I can quickly switch to/from cash. And if I had put all my money in this trade, I would have gone broke last April, so that’s why I only do a portion with this trade and keep lots of cash for tough times.

The way to bring the volatility of the trade down is to mix it with positions that are very stable, so that its volatility is muted by steady results elsewhere. Mix this trade with 5, 10 or even 20x of other positions that just earn basic interest, and you can have a mix with nice upside and not that much downside. That’s how I can do a trade like this without getting stressed out.

This trade is about as close to day trading as I get. I make a rolling trade of my positions each day, but I don’t spend much time the rest of the day watching the markets. With several days until expiration, there isn’t much that happens during a trading day to require any kind of action.

Can this trade keep averaging 30% return on risk capital per month? Only time will tell.

Rolling Losing Positions?

I recently responded to a social media post which asked why there is so much hate out in the social media world regarding rolling losing option positions. If you frequent any discussions about managing option trades, and someone discusses rolling a losing position, there will be some critic who comments to say that rolling options is horrible and locks in losses, and is a low probability trade, and basically is un-American. I sometimes get these kinds of responses myself, and if you read much of what I write, you know that I disagree with that. Rolling is a key part of many of my strategies including the rolling 7 DTE trade that I frequently trade. So, the following is my thoughts on rolling losing option positions.

As someone who rolls almost all my positions, win or lose, and often writes about it, my thought is that a lot of people that write negatively about rolling don’t really understand the benefits. It isn’t an issue that everybody should roll, or that nobody should, but more that it is a method that works well for a certain mindset. Some traders approach managing trades very differently and that’s great for them.

I think the issue is when the discussion comes to managing a losing position. There’s really three choices: hold, stop, or roll. A legitimate argument can be made for each approach, but I think the right answer comes down to the type of position that is in trouble, the trader’s view of the market probabilities looking forward, and personal preferences around risk and reward.

I roll my credit put spreads on SPX in virtually every situation. I want to avoid expiration drama, so I never hold to expiration. When I used stops in the past, it seemed like I got stopped out just as the market bottomed out and I found that frustrating. I now specifically seek out trades that accommodate rolling options and develop mechanical triggers on when and how I’ll roll a position.

For me the benefit of rolling a losing position is giving myself time and space to be right. I almost always collect a credit for a roll, so I’m paid to wait for a turnaround. Each roll improves the cost basis of my trade. When my position is being tested I try to roll both down and out for a credit, so that I don’t need a full recovery to come out with a profit. Since most of my positions are credit spreads, I do have an issue that if my position gets in the money, it is no longer able to roll for a credit, and I’m forced to pay a debit to stay in. Because my positions start at least an expected move away from the initial price, I rarely end up in the money paying a debit. I’ve found that with the trades I do, I collect credit 97-98% of the time, and the debits I pay have generally been about the same as the credit I get when I’m rolling a winning trade which happens much more often.

The big benefits I see from rolling credit spreads is that I keep time decay working for me 24/7. I don’t have to decide when to jump back in after being stopped out because I’m never out.

For those that say that rolling locks in a loss and puts you in a worse position, I understand that the act of rolling options, closing a losing trade and opening one is truly closing a losing trade. However, my new position is poised to earn all the loss back plus a profit beyond. Usually, when rolling a loser, the market is approaching an oversold situation and is increasingly likely to start back up. Since almost all my rolled positions are still out of the money, I usually still have positive expectancy and better than 50/50 odds of a profit. Market downturns are the best time to buy, so in many ways I’m forcing myself to buy the dip.

Rolling losing option positions does introduce a lot of volatility into a portfolio value. I get great returns through rolling, but my positions’ marked values go up and down more than many people can tolerate, and I understand. Every strategy for management has pros and cons, and some are no-goes for some traders. Each person has to find mechanics that match their tolerance for risk, and expectations for return.

It isn’t easy emotionally to roll in tough markets, but I don’t think it is any easier to take a loss when you are stopped out. I lost a lot just today, Nov 30, 2021, and did a number of rolls as part of my mechanics. However, I’ve been through this numerous times before, recovering fully each time, and built up cash reserves in good times, so that I’m ready for whatever the market is going to do.

Some types of trades just aren’t made for rolling options. For example I won’t roll a credit call spread that loses because I find they just compound losses as the market drifts higher more often than it falls, and it isn’t a fight I can win consistently. I don’t use rolls as much in individual stocks because moves can be extreme and last a long time. I don’t try to roll trades on expiration day because the numbers don’t work out. So I do have limits and don’t blindly roll every kind of trade. I find that many people critiquing rolling as a strategy are talking about one of these losing situations that even I won’t roll in.

I’ve had many people reach out to try to understand rolling options and from their questions I can see that it is a hard concept to grasp. I love it when the lightbulb comes on for someone, and it is also troubling when someone misses the point and drops a position, closing at the worst possible time. I usually get a few messages of a bad loss on days like last Friday or today, but I also get nice thank you notes from many more when the market goes up after a downturn and the person came out of a down market with a profit overall and their account at new highs.

I know my rolling approach isn’t for everyone and that’s okay. But it works for me. If it doesn’t work for you, then do what does work for you, and maybe learn a little more about rolling before you bad mouth it out of hand.

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