Rolling an option from a time series to another time series is basically closing current and buying the different option expiration. It can also be done by buying a different strike or both.
Why Roll?
There are several reasons why a trader would roll up a position, which includes avoiding exercise on short call positions. Or, it simply could be an expression of increased bullishness for a long call position. Remember that an in-the-money (ITM) long call loses most of its time value, so rolling to an OTM call would give the trader partial profits and, possibly, more bang for the buck, thanks to the lower price of the new calls.
Unlike equities, options have an expiration date. They die, literally going to zero unless the underlying price is trading above or below the strike (depending on put/calls).
As time ticks away, eventually traders are met with a decision: roll the position or cut the position. Rolling is the process of exiting your current position and going to a further expiration and putting on the same/similar position—in effect you’re buying yourself more time.
When it comes to Rolling-up, you’re usually dealing with profit taking. Whereas traditional Rolling typically involves moving further out in timeframe, Rolling-up involves rolling into a higher strike. You’d really only do this when your current position is somewhere ITM and you think there is more to the move but you’re getting worried about how much time is left until expiration. It’s a fresh position, manage it accordingly.
KEY TAKEAWAYS
An option roll up closes out an options position in one strike or expiration in order to open a new position in the same type of option but at a higher strike price or different expiration.
Rolling up or down usually refers to picking a higher or lower strike than the one you currently hold.
Rolling out or in usually refers to picking an expiration closer or further from the one you currently hold.
Questions or suggestions?
Please reach out if you have any further questions or suggestions.