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  1. Aren't you likelier to lose money from rolling, e.g. scenarios 3-5 below? How exactly can rolling profit you?

  2. What if you aren't more bullish or bearish than before? What if you surmise that the underlying stock will attain only a certain range of prices, and de/in-crease no further?

I'll brainstorm three cases. Imagine that:

  1. you bought a call. Your underlying asset's price hasn't risen above the spot price on purchase date.

  2. you bought a put. Your underlying's price hasn't dropped below the spot price on purchase date.

In both cases, your call's and put's prices will have dropped, and you've lost money.

  1. your underlying's price de/in-creases beyond the purchase spot price. Then all options' IV may rise. Then even puts at lower strike prices and calls at higher strike prices will cost more.
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If markets are efficient, the option premium will equal the expected return on the option. This is independent of the past history of the underlying security.

In order for the past history to matter, you will need to demonstrate market inefficiency. It is possible to demonstrate some market inefficiencies (e.g., the fixed income pricing literature is generally premised on the existence of a term risk premium, the issue is how to estimate it). However, future returns getting a risk premium based on recent historical price movements would be equivalent to proving that technical analysis can reliably outperform (on a probabilistic basis). Finding validation of such a possibility has been a major challenge for researchers.

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Your questions are non specific so they're unanswerable. So let's try some examples.

(1) I own XYZ with a target sale price of \$55 so I sold a \$55 covered call. XYZ has risen to \$53 and since expiration is approaching, the short call is worth nickels or dimes. Evaluate the \$55 calls of later expirations. If the premium per day for a \$55 call "X" weeks out is higher, roll so you earn more per day.

(2) I bought a high delta ITM call and the stock and call have appreciated nicely. I want to lock in some of my gain and lower cost basis so I roll the call up (understanding that I'm giving up some long delta).

(3) I bought a call and the stock and call are lower. I can do a Long Call Repair Strategy to lower my break even.

The short answer is that you roll if you feel that there's an advantage to doing so.

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  • $\begingroup$ Thanks again Bob. Henceforward, can you please exemplify with just simple calls and puts? (1) If "XYZ has risen to 53", why would you sell $"55 calls of later expirations"? Isn't 53 too close to 55 for you to profit? (2) "I want to lock in some of my gain and lower cost basis". So why don't you merely sell the call? Why "roll the call up"? If you roll up, aren't you even more bullish than before? Aren't you presuming that the call will rise even more? If the stock doesn't rise, you'll lose money on your new call with higher expiration. $\endgroup$ – NNOX Apps Oct 7 '20 at 21:25
  • $\begingroup$ (3) How's the Long Call Repair Strategy "rolling"? You're buying a new call at a LOWER strike price, but rolling's defined as buying a new call at a higher strike price, or new put at a lower strike price. That link has a typo: "1. Selling not one but TWO of the \$.50 calls for \$1.25." The "\$.50" ought be \$50. $\endgroup$ – NNOX Apps Oct 7 '20 at 21:25
  • $\begingroup$ (1) If "XYZ has risen to 53", why would you sell $55 calls of later expirations"? Isn't 53 too close to 55 for you to profit? Your question was about rolling. Whether you agree with the strategy employed has nothing to do with that. (2) "I want to lock in some of my gain and lower cost basis". So why don't you merely sell the call? Why "roll the call up"? If I'm still bullish, I could hold the original call. If I want to lock in some of the gain, I could roll. If no longer bullish, I sell. $\endgroup$ – Bob Baerker Oct 7 '20 at 22:07
  • $\begingroup$ (3) How's the Long Call Repair Strategy "rolling"? You're buying a new call at a LOWER strike price, but rolling's defined as buying a new call at a higher strike price, or new put at a lower strike price. No, rolling can be up, down, horizontally or diagonally. It makes more sense to reply to comments with comments. $\endgroup$ – Bob Baerker Oct 7 '20 at 22:08
  • $\begingroup$ (1) "Evaluate the 55 calls of later expirations." Thanks for distinguishing the strategy from rolling. But now that "XYZ has risen to 53", "$55 calls of later expirations" cost more. Why evaluate them? Again, doesn't evaluating them mean that you're more bullish than before? (2) After the "stock and call have appreciated nicely", isn't the question whether you're MORE bullish than before, not merely whether you're "still bullish"? $\endgroup$ – NNOX Apps Oct 8 '20 at 16:22
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What if you surmise that the underlying stock will attain only a certain range of prices, and de/in-crease no further?

I am not familiar with options trading, however, based on your question I offer the following information. Stock market investor William J. O'Neil wrote a book called How To Make Money in Stocks. In this book he says those who are new to stock market investing should focus on how to buy, hold, and sell growth stocks in a short term portfolio and should look for index investment strategies in a long term portfolio. Stay away from options, margin, and shorting strategies until one becomes proficient at predicting the direction of prices on the underlying investment positions. If your investment theory gets market direction wrong then it will produce a loss in the portfolio. Money management means cutting losses short and letting winning trades run for large gains.

One investor had a friend who plays poker. He asks, "Why am I better at investing while you are better at poker? His friend says, "You think poker is a card game." In poker you fold with a weak hand to keep losses small, bet more aggressively with a stronger hand, and learn how to read and intimidate the other players with betting strategies. The objective of active investing and poker is to gain more from winning big and don't donate too much funds to the gains taken out by the other players in the game.

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