Roll adjustments involve an Options trader closing one Options position such as a Vertical Spread and re-opening it again.
It is possible to both roll out and roll up or roll down. These relate to the Strike Price or expiry date of the option.
Option positions can be rolled for a credit or a debit. In the case of a former, this means the trader makes a profit as a result of rolling, whereas a debit usually means they have incurred a loss and are initiating a roll to open a new position that will recover the loss (and potentially generate a profit).
Since rolls can generate a credit, sometimes they can be used to lock in a profit from one position and then move closer to the money to seek to generate another. This is particularly true of Underlying assets or commodities where the market is maintaining a consistent direction (whether up, down or sideways).
While the trader may see rolled positions as related to each other, they are essentially entirely separate.
Contributed by: Ralph Windsor
It is possible to both roll out and roll up or roll down. These relate to the Strike Price or expiry date of the option.
Option positions can be rolled for a credit or a debit. In the case of a former, this means the trader makes a profit as a result of rolling, whereas a debit usually means they have incurred a loss and are initiating a roll to open a new position that will recover the loss (and potentially generate a profit).
Since rolls can generate a credit, sometimes they can be used to lock in a profit from one position and then move closer to the money to seek to generate another. This is particularly true of Underlying assets or commodities where the market is maintaining a consistent direction (whether up, down or sideways).
While the trader may see rolled positions as related to each other, they are essentially entirely separate.
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