| Editor's note: From the desk of Mark Sebastian. |
Back when I was making markets in the pit, we had a saying: follow the winners.
| | When someone came back day after day, trade after trade, and kept printing money, you didn't ask questions. You watched what they did and learned from it. | That's exactly what a close-and-roll tells us in the options market. And once you know how to spot them, you'll never look at order flow the same way. | The Pattern That Pays | A close-and-roll happens when a trader sells a winning position and immediately uses those profits to buy a new position at a higher price target. | Think of it like a relay race. They don't stop running when they finish the first leg. They hand the baton to themselves and keep going. | They're not cashing out. They're doubling down on their conviction with house money. | Here's an example of what this looks like. A trader buys calls for about 90 cents. The stock runs. Those calls are now worth $1.67. Most people would sell, pat themselves on the back, and call it a win. | But this trader does something smarter. They sell their original calls at $1.67 and immediately buy higher-strike calls for 80 cents. | Same expiration, higher target, continued upside exposure. | Do the math with me. They paid 90 cents to get in. They collected $1.67 selling the winners. They paid 80 cents for the new position. That's 90 plus 80, minus 167. | They're into the new calls for about three cents. | Three cents. That's a nearly free lottery ticket on a stock that keeps running higher. | Why This Matters | Back when I was making markets on the CBOE floor, we watched for exactly this kind of activity. When a trader wins and immediately rolls higher, they're telling you something. | They're not hoping the stock goes up. They believe it will, and they're putting their winnings on the line to prove it. | This separates professionals from amateurs. Amateurs take their ball and go home when they're ahead. Professionals lock in gains while keeping their foot on the gas. | Think of it like the NFL. If your buddy picked nine winners out of 12 games, you'd want to know who he likes next week. Same logic applies here. This trader just showed you their track record, and now they're making another bet in the same direction. | Fresh buys grab my interest. Someone new is taking a position. That's worth noting. | But rolls from winners? Those grab my attention and my money. A fresh buy could be wrong. We've all been there. But when someone already made money on a trade and they're rolling those profits into a higher target, they've got conviction backed by results. | Opinions are like belly buttons. Everybody's got one. But when someone puts real money behind their opinion, and that money has already been proven right, you pay attention. | That's the edge floor traders have always understood. It's not about guessing. It's about following the people who are already winning. | Your only option, | Mark Sebastian | | Questions or concerns about our products? 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