ROLL an option

I had read somewhere where someone was talking about having call options and before they expire he would ROLL them?

What does that mean?

 

Roll em and smoke em.





__________________
Please, I'm not a daytrader, I'm an "Intraday Liquidity Provider"

1-888-TRADEUP

 

Generally options are rolled either up (for calls) or out. Puts are rolled either down or out.

I roll as a defensive measure. If I am short a 100 strike U call and the market has moved adversely, I might roll up by buying back the short 100 and maybe writing two 110 U calls. This increases my exposure but moves the danger area higher. Could also be seen as a form of averaging down. Ie, the market may trend adversely longer than one has the margin to roll.

Rolling out is the same thing except you roll out in time. If I was short a 100 strike U call and wanted to roll out, I might buy back the short U and maybe write something in the V or X or Zs.

I generally prefer to roll up rather than out.


I hope this helps and I hope you hear from others as well.

Peace and gtty,

Lar

 

Thank you Lar.

 

You're Welcome Tom631,

The other use for rolling that I am aware of is rolling forward. That allows the trader the ability to stay in the market when his/her current contract is due to expire.

Long U and U is due to expire soon, sell the U to offset and buy the V or X or Z or whatever as a spread 1:1. This requires the trader to eat the carry charges. Rolling can incur carry charges which inflict dramatic costs to the account... multiple rolls even moreso.

Gtty,

Lar

 

Rolling up or down refers to moving your position from one striike to another within the same expiry.

Rolling out refers to moving your position from one expiry to a later one at the same strike.

An option traders may roll, say, down and out in an effort to improve his position.

Such tactics may be used with puts and/or calls - and the roll depends on what the trader is trying to accomplish.

 

Rolling is just a fancy way of saying that you are taking a loss on an existing position and opening a new one (the more frequent version), or taking a profit on an existing and opening a new one (the less frequent version).

 

I never heard it put that way before MTE but for crying out loud it sure fits. lol

 

Options can be rolled up, down, out and diagonally. Doesn't matter if they're puts or calls. Depending on the circumstances, one does it to diminish risk or add profit potential.

 

Touche' !