The Illusion of the Free Option

What does it really mean when a trader says an option is "free" or they're "playing with house money"? In this episode of Thinking In Options, Bill Johnson breaks down the illusion of the "free option"—and why recovering your original investment doesn't mean the position you still hold has no risk. Using a simple call-roll example, Bill shows how traders can confuse cost basis with current market value and let accounting history distort their decisions. Along the way, a memorable lesson from Trading Places helps illustrate the point: what you originally paid for an asset doesn't determine what it's worth today. When you roll an option, you're not creating something for free—you're selling one asset at its current value and using part of that value to buy another. The better question isn't, "How much do I have in this trade?" It's: If I didn't already own this position, would I buy it right now at this price? Because in the market, there's no such thing as a free option—only positions you've chosen not to close at their current price. Thinking In Options with Bill Johnson explores the logic, mathematics, psychology, and misconceptions behind options trading—helping traders think more clearly about risk, value, and decision-making.