What Is a Roll Down?

A roll down is an adjustment strategy in options trading that allows a trader to improve the opportunities for profit by lowering the strike price to a more favorable position.

Understanding Roll Down

A roll down is accomplished by closing the initial contract and opening a new contract for the same 澳洲幸运5开奖号码历史查询:underlying asset at a lower strike price. Since it is a single trade, there🎃 is only a single commission charge.

Option traders may find that they can make more money by holding their position at a lower strike price. It is simple enough to close their former trade and reopen the same position on a lower strike price, thus making a roll down slightly more efficient. To roll the option down, a trader must put in an order that closes their current position and opens the same kind of position but with a lower strike price. This can be done simply by opening a trade for an option spread that accomplishes what might be ne♏eded.

Let's say, for example, that an investor owned 100 shares of a stock priced near $200. The investor wants to hold the shares as long as possible, but also wants to make some income from holding on to the shares. The investor sells a 澳洲幸运5开奖号码历史查询:covered call and opens the option trade with a strike price of $210 with a month before expiration. Two weeks later, the price of the stock is now down below $195. The i⭕nvestor realizes that they could make more profit if they were able to switch from a $210 strike price down to a $200 strike pri🧔ce.

In this scenario the investor could either close the $210 covered call position (buy it back at a lower price), and then sell another covered call at $200, or they could simply open a short call vertical spread trade (also known as a 澳洲幸运5开奖号码历史查询:bear call spread) that includes the $210 and $200 strike prices. The action of initiating this trad𒅌e brꦛeaks down this way:

• Purchase a contract at the $210 strike price.
• Sell a contract at the $200 strike price.
• Since the initial position was open by selling a contract at the $210 strike price, this action now closes that position, leaving the new contract at the $200 strike price to be the only remaining contract open.
• Thus, the position is effectively rolled down from $210 to $200 in a single trade.

Other Types of Rolls

Roll downs can happen as part of any option strategy where the trader wants to benefit from a lower strike price. A roll down can happen with calls, puts, or existing spread trades. A roll down, whether on a 澳洲幸运5开奖号码历史查询:call option or a 澳洲幸运5开奖号码历史查询:put option, is usually a bearish strategy, benefitin♊g from prices falling further.

When rolling calls, the new position will be more expensive than the old position, due to the lower strike. New put contracts will cost less in a roll down than the old put contracts. Depending on whether the old and new positions are long or short, the result of a roll up could be a debit or a credit to the a𝔍ccount. How much depends on the 🎃price differential of the rolled options.

There are several reasons why a trader would roll down a position. They include avoiding exercise on short put positions. Or, it simply could be an expression of increased bearishness for a long put position and wanting to roll the contract to a later 澳洲幸运5开奖号码历史查询:expiration date. Remember that an 澳洲幸运5开奖号码历史查询:in-the-money (ITM) long put loses most of its time value, so rolling to an 澳洲幸运5开奖号码历史查询:out-of-the money (OTM) put would give the trader partial profi𝓡ts and possibly more bang f🐻or the buck, thanks to the lower price of the new puts.

A long call position might roll to a🐻 lower strike price if the underlying asset moved lower in price but the trader still believes it will eventually rise. In th💃is way, the position remains in place with losses cut somewhat.

If the new contract involves a higher strike price and a later expiration date, the strategy is called a "roll-up and forward." If the new contract is one with a lower strike price and later expiration date, it is called a "roll-down and forward."

Options traders use rolling strategies to respond to changing market conditions and to secure profits, limit losses, and manage risk.