Rolling Options

Finance Articles | April 17, 2009

Rolling options is a great way to keep the advantages of an option even after the old option expires.

All options eventually expire. But there are many times when you still want to use the option contract to profit. In this case rolling your option into a later date can be a good idea.

When you roll options you simply close the option position you are in and open up another option position in with a later expiration date. This can help you in the following ways.

1. Extend the life of your option

If you buy an option on an up trending stock and that stock continues to trend up, chances are you are going to want to stay in it, at least until it stops going up. In this case you can always continue its life by rolling it out to the future.

2. You May Not Want to Get Called Out

If you do not want to end up owning or selling the stock you can always roll the option onto a later date where you can keep the option and keep making money from it. Of course if you sell options you still have a chance of getting called out even if your stock has a while until expiration.

3. Compound Interest

If you made money from your option then rolling it over onto another trade is a great way to put your profits to work making more profits. Compound interest is a powerful thing and it can really pay off in the future.

4. It Helps With Time Value

If you bought an option and it is getting closer to expiration the option price will be negatively affected as time value erodes away. The best way to lessen the effects of time value is to buy the option at a further date.

So if the option is close to expiration and you roll it out further to a later date to lessen the impact time value will have on your position.

These are just some reasons why you might want to consider rolling options to a further date.

For more on rolling options visit http://www.stocks-simplified.com/rolling_options.html

For some more on options visit http://www.stocks-simplified.com/stock_options.html

Article Tags: Rolling Options, Later Date, Time Value

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