Jim Cramer says in his book that I can do a "roll-over" on my contract, and instruct my broker to "swap my call" from this month with a contract from a later month. He says there's a small commission(much smaller today, than when he used to do it) and there's also a small spread between the sale of the call and the buy of the new one in a different month- but that spread is minor in the over a scheme of things. He says for basically no more than pennies I can roll this contract over, preserving the trade at "very little cost". I asked Scottrade, If I could do this and they said there was no way they knew of to do a roll over, but that I was certainly able to buy another call for the following month. Have rules changed since his publishing(2009), Am I using the wrong trading platform, or Is Cramer talking out of his ass? I haven't really found him to be wrong on much, other than his picks(and his ties). Could someone shed a little light here?
What do you mean by "preserve the trade"? In order to roll the trade out to another month, you first close the current trade and then roll it out to another month.... and/or to another strike as well. Perhaps I'm not clear what you are asking. Rolling is just a fancy way of saying you want to close down the current stock/option trade, and then get right back into it, using different parameters of either strike and/or expiration date. What is your goal in wanting to roll? I'm going out. I'll read you later.
I'm no expert on options but I'm thinking Cramer was using the term "rollover" in the generic sense. There's no automatic way you can rollover your option, you have to do it manually. And of course that requires paying commission and the spread.
Rolling just means closing out the current trade and opening one further out. The cost of the roll obviously depends on the price differences. But there is no way the cost to roll is "just pennies", unless you're talking about comission only.
Here's the exerpt from the second paragraph of page 182 of his book "Getting Back to Even", where Cramer is explaining the advantages of not going out too far for the in-the-money calls: "I still think- thousands of trades later- that the July in-the-money calls[as opposed to the Oct. in-the-money calls] represents the best bet, and here's why: as you get closer to the expiration date you can do something called "rolling over" your contract to the next month. That's simply instructing your broker to swap your July in-the-money call for a later month as you get closer to the July expiration date. If you are going to a near month, there will be, just as in the case of the original call, very little premium over the common stock. So if your stock hasn't moved yet and you still think it will, you can just keep risking the same amount of money. There's a price to pay. You've got a small commission attached to the rollover trade, much lower today, by the way, than what I paid at the time. And there's also a small spread between the sale of the call and the buy of a new one in a different month, but that spread is typically minimal and barely factors in to the overall scheme of things. All in all, we are talking no more than pennies to roll over one deep in-the-money call to another in a later month, preserving the trade at very little cost." If he is saying what I think you think he is saying, Wouldn't it have been easier for him to say: "If the trade isn't going your way, you could always sell your current contract at whatever the current market gives you for it, and buy the same call for next month at whatever the market is demanding." ? I doubt this would be at very little cost though- at least most of the time.
I think maybe its the words he is using to frame his thought that are confusing me. Because you're not really "rolling over your contract", but are instead closing one and opening another. And your not really "preserving your trade", as you are, again, giving up one position, and then taking another. Is that right?
Rolling over an option == closing the existing position ( either buying or selling) and then opening a new position (either selling or buying) for another month. IB also calls it rollover. You can do it in two ways: 1- do it manually (you might get better deals) 2- do it in a combo order (less risk because one leg might not run away from you after you do the first leg). You can rollover spread or complex option trades and then doing it in combo will be quite interesting and if the option is not a heavily traded, you might need to settle on the bid price if you are selling and on the ask price if you are selling.
Closing the contract of the stock and then opening another contract in the "same stock", is an example of rolling. While you are not preserving the trade, you are preserving the stock. In other words, once you close a contract, you are done with that investment. It is over. You are now back in cash. You can take that cash and invest it in another stock. Or in another stock/option combo trade. HOWEVER, if instead of doing that, you instead open up a new option contract with the "same stock", it's now called a roll. You have decided to "preserve" your investment cash in the same stock. Before you decide to roll, (get back in the same stock), let me make one suggestion. First look around. Are there better stocks to be in? Are they a better value? Are there better option trades in other stocks to consider? Might they be safer and/or offer a similar credit as the previous one? Is there a reason you want to try to make money with the same stock again, vs making the same money in another stock? Isn't a credit earned in one stock valued the same, as the same credit in another stock, assuming the same cash at risk per unit of time? Are you merely trying to "get even" in the same stock for ego purposes? You need to explain to yourself why you think riding this same stock up higher, is a better idea than riding another,.... which may actually be a better value. Rolling is merely an investment choice. It's not always the correct choice.
Gosh.. this shows you how much ole Cramer knows about options trading... if you ask me.. that or maybe he has dumbed it down so much to feed it to all those retail traders out there that are dying for other people to make decisions for themselves.. Frankly i like the guys charisma but i don't watch him.. someone called him a stock cheerleader. and that hit the spot for me.. i personally can't see not selling a farther outta the money call at a farther out month when i initiated the trade if i was using this strategy.. obviously i would have a target for the stock... that way when i roll or shall i say re expose myself respectively i'll have some of the ongoing costs associated with the trade a bit mitigated.. IE Theta.. the Front month deep in the money call will start to burn in value from theta.. the otm will burn along with to balance the position theta down a little bit... of course on a side note.. you definitely would wanna put a combo order on to roll this position to not leave yourself naked a otm call option.. and i suggest you read some other books.. like for sure! ps.. all the stocks that he sugguests are ones that he has in the trust that he trades... big deal he discloses it.. but realistically on national TV he is basically advertising his own inventory.. My favorite author and mentor trader doesn't watch TV... Nor do I... at least not for weeks and weeks at a time.. The significant news you'll hear about anyway.. All watching CNBC does is create a bunch of noise that no matter who you are you end up getting lost in it!
i gave up on CNBC about 2 years ago. I really like watching FBN..... FOX BUSINESS NEWS. Great anchors, excellent discussions, good interviews with business heads, and sound analysis of stocks and sectors.