Rolling options strategies are defined in options as moving
a position from one strike to another either vertically in the
same month, horizontally to another month or some combination
Other times, you may have to buy your short call back so that
you will not lose your stock. Sometimes, good options strategies
will lead you to allow the stock to be called away if you have
decided that the stock has reached a level were you want to
take your profits and begin to look for another opportunity.
The term roll in terms of options strategies, means to move
your position either out to the next strike or to move your
position up or down a strike in the same month. The term roll
means to move.
Rolling is normally done via time spread and/or vertical spreads.
Without getting into the trading of spreads, which are unique
options strategies in themselves, we will talk a little about
As stated before, the covered call options strategies
effective when executed month in and month out over an extended
period of time.
In order to do properly execute these options strategies, an
investor must re-initiate the position every month at the options
expiration. The re-initiation of the position every month is
where the term rolling comes from. However, there may be times
when you may want to give yourself a little more upside room
for capital appreciation. In those rare cases, you will not
want to roll the position, because it might be called away
if the call you sold is exercised when it becomes in the money.
When an options expiration approaches, your short option can
either be in-the-money or out-of-the-money. As we discuss the
two potential outcomes from following these options strategies,
lets first assume that we want to hold onto our stock.
If the option is going to finish out of the money, you would
let it expire worthless and then sell the next months call.
If the option is going to expire in-the-money and you want to
keep the stock you will need to buy the short option back and
sell the next months call.
This trade will consist of two option trades. You will be buying
one option and selling another, which is commonly known as a
spread and is referred to as a single trade.
So, when you roll out your covered call or buy-write, you do
it by doing a spread. The front month option, the one that you
happen to be short, will be bought back thus ensuring you keep
The second month option will be sold short thus re-initiating
your covered call options strategies
. The position that remains
is long stock and short calls. As far as the selection process
of the spread used for the rolling of the position, there will
be some choices.
Of course, there is no choice as to the front month option,
you must buy back the option you are short. However, you do
have a choice as to the next month option you are going to sell,
whether it is near term or farther out in expiration.