Need help calculating levels with an options roll

[FLJLee]

Hey all,

I have gone a bit cross-eyed and am starting to second guess myself here... I could use some help calculating levels with an options roll.

Original trade was selling a weekly June 17 322.50 put option for $10 credit. The stock tanked and is currently trading around $300-315 level. I am looking to roll the option, but trying to decide whether to just roll it out or down and out.

Here is the scenario I am looking at:

• Buy back the June 17 322.50 put for a loss, it's currently trading @ ~$26+/-
• Sell the June 17 320 put for a ~$30+/- credit; (net credit would be ~$4)

If I rolled it out and down, what would be my new breakeven be? Would I use the new strike to calculate breakeven? ($320-30)+($26-$10)=$306.00?

And would my new max profit would go from $10 to $4 correct?

Also, is it better to roll out less times or keep rolling on a weekly basis?

Any help would be appreciated, thanks!

 

[Statistical Trader]

The math on your breakeven is correct given the prices you state, but I think your prices are wrong.
($10+30-26 = $14 total credit; $320 - $14 = $306 breakeven.)

Why would the 322.50 put trade cheaper than the 320 put if they have the same expiry?!

The equity is deeper in the money with the 322.50 put, so the 322.50 should be worth more than the 320 by approximately 2.50 of intrinsic value.
(With the prices you state, I could just sell the 320 and buy the 322.50 for a guaranteed arb profit of at least $4 and as much as $6.50, depending where the stock ends up.)

Re-check your prices... and don't forget to take the bid/ask spread into account. Maybe you're looking at stale "last traded" prices instead of current bid and ask prices??

Moreover, just rolling down because you're under water isn't necessarily the best strategy, but that's a different topic. Get your numbers right first to see if it's worth it to you to roll and take the risk or just eat your loss.