If my math is correct on this example with BITO: 1 aug4 $18 call contract is .32 1 sep29 $18 call contract is .80 if price drops to $15 by July10: Aug4 option will have lost -.24 Sep29 option will have lost -.46 So the cost to roll out to the sep29 option should be about .34 plus the -.24 = .58 The original cost to just have entered into the sep29 contract would have been .80 So you are getting the same contract at a .22 discount. I did my calc using the TOS analyze tab...anybody able to confirm? I did not adjust for changes in volatility.
Aug4 18 ---> 28 DTE ---> .32 Aug4 19 ---> 28 DTE ---> .25 -comparing price to the current aug4 19 strike ($3 otm) with the same expiry. With a stock price of $15 on Sep29, the Sep29 18 contract will be $3 otm and 28 DTE. (Sep.29 18 ---> 28 DTE ---> -.69 or 80+-.69 =.11) +5% volatility then the price is -.65 so (-.65 + .80 = .15) +10% volatility then the price is -.59 so (-.59 + .80 = .21) +15% volatility then the price is -.56 so (-.56 + .80 = .24) If I apply +15% volatility to my original calculation for a July10 rollout its -.87 (-.17 +.80=.63 + -.24 = .87)
@wxytrader, the B/A spread is big, you better should do your calcs by using the respective MidPrice... IMO there is nothing to gain from rolling, except maybe when making use of mispricings in B/A, but which are very rare and minuscule.