Rolling options to a later date is something that you have probably seen if you are trading options.
It allows you to get out of a position you are currently in and get into a position at a later date.
I'm sure you know that all option contracts eventually expire.
At that expiration date they are either profitable or not.
Well if an option you own is about to expire you have the option to exit that position and get into a position at a later date.
For example I sold a $5 put on a $6 stock and made $.
6.
When the expiration date came closer the stock was at just a little above $6 and the put was trading at $.
10.
I was able to buy the put at $.
10 and sell the next month's put at $.
50.
Why would I do this? 1.
Take Profits The put I sold for $.
60 was trading at $.
10.
So I was able to take a $.
50 profit on the option I sold.
The majority of the profit had already been made, so it was time to just exit the position.
2.
Keep Watering the Money Tree If something is working I want to get as much money from it as possible.
So by selling the next month's option I am able to keep it going and hopefully pull out more money.
3.
Enter at a good price I could always just wait until my option expires before I buy the next months.
But there is no guarantee that the next months put will still be trading at $.
50.
The stock might go up to $7 or $8, and that option might only be worth $.
05 by the time I could get into it.
By getting in early I am insuring that I will get it at or around the price I want.