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Closing out the current position and entering a further out spread
Maintaining the same expiration date and rolling out to a further strike
Roll Up: Closing an existing options position and while opening a new position in the same option at a higher strike price
Roll Down: Closing an existing options position and while opening a new position in the same option at a lower strike price
Maintaining the strikes but rolling to a further expiration (Roll Forward)
Combination of the above two
Closing an existing options position while opening a new position in the same option at a higher strike price
For a call option, a roll up is a bullish strategy
Cost of the new position is lower than the profit generated from closing the old position (net credit from a roll up)
Spot price: 40. Strike of existing call is 35, roll up to 45. Spot price moves up towards 50, the 45 call goes ITM.
For a put option, a roll up is a bearish strategy
Cost of the new position is higher than the profit generated from closing the old position (net debit from a roll up)
Spot price: 40. Strike of existing put is 45, roll up to 50. Spot price moves up to 55, put option goes OTM but expects the underlying to fall to 45 in the future (or bearish of underlying).
Reasons for rolling up an option
Avoid exercise on short call positions
Increase bullishness for a long call position
For long put, roll up if underlying asset moved high in price, but there is still a long term bearishness
Closing an existing options position while opening a new position in the same option at a lower strike price
For a call option, a roll down is a bearish strategy
Cost of the new position is lower than the profit generated from closing the old position (net credit from a roll down)
Sells a covered call with a 55 strike price. Spot price falls from 50 to 45. Investor can roll down the option to sell a call with a 50 strike price (and buy back the 55 call). This is rolling down a covered call.
For a put option, a roll down is a bearish strategy
Cost of the new position is lower than the profit generated from closing the old position (net credit from a roll down)
Spot price: 50, Strike of existing put is 55, roll down to 45. If spot prices moves down to 40, the 45 Put goes ITM. (TBC)
Reasons for rolling down an option
Where a trader wants to benefit from a lower strike price
Avoiding exercise or short put positions
Increased bearishness of a long put position
Extending the expiration of an option, by closing the initial option and opening a new option with a later expiry at the same strike price
https://www.investopedia.com/terms/r/rollup.asp
https://www.investopedia.com/terms/r/rolldown.asp
https://www.investopedia.com/terms/r/rollforward.asp