Better to buy short term options and roll out if value drops?

W

wxytrader

If my math is correct on this example with BITO:

1 aug4 $18 call contract is .32
1 sep29 $18 call contract is .80

if price drops to $15 by July10:
Aug4 option will have lost -.24
Sep29 option will have lost -.46

So the cost to roll out to the sep29 option should be about .34 plus the -.24 = .58
The original cost to just have entered into the sep29 contract would have been .80

So you are getting the same contract at a .22 discount. I did my calc using the TOS analyze tab...anybody able to confirm? I did not adjust for changes in volatility.
 
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Aug4 18 ---> 28 DTE ---> .32
Aug4 19 ---> 28 DTE ---> .25
-comparing price to the current aug4 19 strike ($3 otm) with the same expiry.

With a stock price of $15 on Sep29, the Sep29 18 contract will be $3 otm and 28 DTE.

(Sep.29 18 ---> 28 DTE ---> -.69 or 80+-.69 =.11)

+5% volatility then the price is -.65 so (-.65 + .80 = .15)
+10% volatility then the price is -.59 so (-.59 + .80 = .21)
+15% volatility then the price is -.56 so (-.56 + .80 = .24)

If I apply +15% volatility to my original calculation for a July10 rollout its -.87 (-.17 +.80=.63 + -.24 = .87)
 
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@wxytrader, the B/A spread is big, you better should do your calcs by using the respective MidPrice...

IMO there is nothing to gain from rolling, except maybe when making use of mispricings in B/A, but which are very rare and minuscule.
 
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