Roll or closed and new order?

[JackRab]

Both are silly things to do.

The first option you propose isn't really rolling into anything. You will just end up with short 30, long 32 and long 35 puts... I don't know what you think you're rolling into, but that's just a doubling down by adding a long 30-35 putspread

The second one, you're kinda rolling... keeping the short delta fairly constant. But, since it's quite far away from expiry... I don't see the point in this trade really.

Has your view changed on Intel? I assume you thought it would be below 29 at expiry, so mainly delta play? Or was it a vol play? Or gamma play?

 

[donnap]

My question/confusion is what is the difference (advantage/disadvantages) between rolling and just closing and opening a new trade, as -$1.14 (cost of the spread) would seem far much cheaper than the -$4.24. Obviously, there is something I am missing or don't understand.

Well, your question is a little vague.

If you open the spread, do you intend to close the 32P? Opening the 30/35 spread would not be a roll in any sense of the word.

Either way, with the spread; you'd still have the 1.51 loss in the 32P realized or unrealized.

You added the loss to the roll up to the 35P, but not to the spread.

With this, it should be clear that there is going to be a cost difference between the spread and the long only position.

 

[HappyTrader]

I'm not sure I entirely understand your post, but let me put this to you:

Technically, rolling XYZ is exactly the same as closing XYZ and opening a new XYZ. Just a 'roll' is such a common activity they combined both activities into one action.

You indicate you can ROLL a position for a debit of $1.14

You indicate you can CLOSE a position for -$1.51 AND open a position for $2.73
This yields a total outlay of: $1.22

So a couple of questions:
1) How did you come up with the figure -$4.24?
2) Are you using IB's TWS Trade Simulator?

If indeed the outlay for option #2 is supposed to be $1.22, then the minor difference from $1.14 could be due to how the mid points are being calculated on the two legs (you seem to indicate ASK in one, and I think the other is MID?)

If you are using IB's TWS, there is a chance that you entered both legs and did not wait long enough for it to update the price correctly and were looking at a non-sense price.

Of course, I may just be mis-understanding your information to begin with But with regards to roll vs close/open, they are the essentially the same (although some execution experts may be able to give insight onto how brokers/markets may deal with one vs. the other for price optimization).

 

[danjuma]

Ironchef, JackRab, donap and HappyTrader, thank you all for trying to understand my question and trying to assist. I am grateful.

@HappyTrader, thank you for your detailed response. Yes indeed I am using TWS trade simulator.
Without going into too much detail and not after a discussion of the pros and cons of the strategy itself, the strategy is to buy a long dated put and sell weeklies against it, and one way of managing it is if the stock prize start to rise too far above the long-dated put, is to re-adjust (raise the put strike). My confusion was that when I right-click on the original long-dated put on TWS, I get the option to roll or close. When I select to roll (which on TWS gives the short description that I am STC the 32 strike and BTO the 35 strike), I get the result as detailed in the first post, for a debit of $1.14. However, doing it manually by STC the original 32 strike (so closed for a loss of $1.51 [$3.09 - &1.58]) and BTO the new 35 strike for a cost of $2.73, my total cost/outlay is $4.24 ($1.51 + $2.73).

So my question was just to understand why the difference between the 'loss' in the two different ways, which would appear on the face of it to be doing the same thing (close 32 strike and open 35 strike), i.e. what am I missing/or have overlooked. That was really what I was after! Thanks

 

[tommcginnis]

Keep On Rollin' Baby!!!!!

EDIT, had to change to the explicit content one!

So *that's* Limp Bizkit. I just missed 'em (and the whole Thrash Rock thing), but always loved the name. A damn sight better'n "Poison" or "MegaDeath" or WTF-ever. (Actually -- that sounds like a great band name right there:"WTF-ever."....) Anyway -- lovely tune. Meaningful. And applicable. Inspiring, in it's own lovely way.

More coffee needed.

 

[HappyTrader]

Ironchef, JackRab, donap and HappyTrader, thank you all for trying to understand my question and trying to assist. I am grateful.

@HappyTrader, thank you for your detailed response. Yes indeed I am using TWS trade simulator.
Without going into too much detail and not after a discussion of the pros and cons of the strategy itself, the strategy is to buy a long dated put and sell weeklies against it, and one way of managing it is if the stock prize start to rise too far above the long-dated put, is to re-adjust (raise the put strike). My confusion was that when I right-click on the original long-dated put on TWS, I get the option to roll or close. When I select to roll (which on TWS gives the short description that I am STC the 32 strike and BTO the 35 strike), I get the result as detailed in the first post, for a debit of $1.14. However, doing it manually by STC the original 32 strike (so closed for a loss of $1.51 [$3.09 - &1.58]) and BTO the new 35 strike for a cost of $2.73, my total cost/outlay is $4.24 ($1.51 + $2.73).

So my question was just to understand why the difference between the 'loss' in the two different ways, which would appear on the face of it to be doing the same thing (close 32 strike and open 35 strike), i.e. what am I missing/or have overlooked. That was really what I was after! Thanks

Could you post a screenshot of the two orders side by side?
I'm thinking one of the prices you are quoting is negative and you might not be noticing the negative sign. Because if you look at the original numbers from the first post, you had 1.51 and 2.73. 1.51 + 2.73 = 4.24. But -1.51 + 2.73 = 1.22 (which is what would match the roll price).

So maybe a few screenshots would help

 

[danjuma]

Could you post a screenshot of the two orders side by side?
I'm thinking one of the prices you are quoting is negative and you might not be noticing the negative sign. Because if you look at the original numbers from the first post, you had 1.51 and 2.73. 1.51 + 2.73 = 4.24. But -1.51 + 2.73 = 1.22 (which is what would match the roll price).

So maybe a few screenshots would help

Hello HappyTrader, thanks for your response. 2.73 is the cost for BTO the 35 strike, so should that not be added to my 1.51 realized loss on closing the 32 strike, for a cost basis of 4.24, or am I missing something?

Anyways, as requested, I have attached a screenshot. This is my interpretation as I understand it (hence the reason for my original post for assistance to make me understand it correctly as obviously I am interpreting it wrongly:

Originally BTO Jan 19'18 32 PUT for 3.90. I want to close this and BTO Jan 19'18 35 PUT.
Doing it leg-by-leg:
STC Jan 19'18 32 PUT for 1.52. Loss on trade -2.38
BTO Jan 19'18 35 PUT for a cost of 2.64.
Total cost of closing the 32 strike and opening the 35 strike = (2.38 + 2.64) = - 5.02

Rolling into a bear put spread via TWS, which the way I interpret it appears to be doing the above - sell Jan 19'18 32 PUT, in effect closing the original BTO Jan 19'18 32 PUT (am I correct?), and buy Jan 19'18 35 PUT - I can buy this spread for 1.12, which I am interpreting (probably wrongly) will be my total cost of closing the 32 strike and opening the 35 strike!

So, my original question was what am I missing or have misunderstood/misinterpreted, as obviously there is a vast difference between the two costs above, and so the two methods cannot be achieving the same thing as I have interpreted it? Thanks

 

[HappyTrader]

I think I see what is going on here:
You are confusing the cost of opening a new position (The Bear Put Spread) with the PNL of rolling a position.

When you ROLL a position in TWS it is showing you the price to execute the roll, it is not showing you the PNL to date you will have on the positions.

In other words:

You bought JAN-19-2018 32 PUT for 3.90

Now you want to do this roll:
SELL JAN-19-2018 32 PUT for 1.52
BUY JAN-19-2018 35 PUT for 2.64

Total cost: -1.52 + 2.64 = 1.12
You will be charged 1.12$ for this transaction (which makes sense as you are moving the strike on a put higher the price should go up).

However, this window ONLY shows you the cost of the roll, it does *not* care you already have a position in 19 JAN'18 32 PUT to close. Notice, it's the cost of the transaction *not* the PNL calculation. As far as I know, this is only shown after the order is executed (and is often not very accurate if you are rolling multiple times).

Put another way, it is up to you to now take that 1.12 and factor in the original amount you spent:
3.90 + 1.12 = 5.02

What you are really wanting is to have an extra column on the right of the window that shows PNL for each leg, so next to Leg 1 it will not only show you the bid/ask but also the PNL, in this case:
3.90 - 1.52 = (2.38) (A loss of $2.38)


So both operations you are doing work out to be the same, its just that in one you are calculating the loss of selling your original position, and in the second you are neglecting to do so, and only factoring in the cost of rolling the position.

An easy way to see this is:
You bought JAN-19-2018 32 PUT for 3.90 and are now selling it for 1.52... You just lost 2.38. To add to this 'loss' you are now going to spend an extra 2.64, bringing up your net costs to 5.02

Hopefully I explained it correctly and the correct thing

 

[danjuma]

@HappyTrader

Sir, you have explained it marvellously and it now all make sense to me. That was all I was after all along - for my mistaken interpretation to be pointed out - but then you get the people that think they know it all and can't wait at the chance to ridicule you and make you out as stupid, ignorant etc. Many thanks for assistance and peace be unto you sir.

PS, just for clarification (after re-reading my first post), I made a typo. I wrote: As at now, I can roll up to a 30/35 bear put spread expiring 19/01/2018 for a debit of $1.14 This was wrong, I meant 32/35 bear put spread. 30 strike has nothing to do with it. Apologies for the typo.