ROLL up and out (forward)

N

NHS

Just a quick questing regarding a simple CALL position and what to look for in Greeks if you want to roll the position slightly up and forward:

Position:
90 contracts long CALL XYZ Strike 290 with exp in June 2010. Initial option price was 48. Stock price currently trading around 340 and current option price is around 55. Implied vol is around 27%-29%.

You think that the stock can go higher during 2010 to level +380 and you want to roll the position forward to September or December and up to strike 320. There will be bumps on the road where the stock price can go from 320 to 360.

At what stock level should you make the move forward and up? – When the stock price is considered high (350-360) or low (320-330)? And should you consider the time near or far from exp date?.

It seems that when the stock price is high you will buy the smallets amount of time-value in the new position.
 
Quote from NHS:

Just a quick questing regarding a simple CALL position and what to look for in Greeks if you want to roll the position slightly up and forward:

Position:
90 contracts long CALL XYZ Strike 290 with exp in June 2010. Initial option price was 48. Stock price currently trading around 340 and current option price is around 55. Implied vol is around 27%-29%.

You think that the stock can go higher during 2010 to level +380 and you want to roll the position forward to September or December and up to strike 320. There will be bumps on the road where the stock price can go from 320 to 360.

At what stock level should you make the move forward and up? – When the stock price is considered high (350-360) or low (320-330)? And should you consider the time near or far from exp date?.

It seems that when the stock price is high you will buy the smallets amount of time-value in the new position.
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Just some thoughts. First, your stock has made a 50% move upward. Yet you have made only 15%, which at this point is better than nothing. You would have made more at this point just buying the stock and setting a trailing stop. Based on your figures, you paid $432,000.00 for your initial position. Your current position is worth $495,000.00 showing a profit of $63,000.00 or 15%. Since the stock has made a tremendous move (based on your figures, the most I would expect the stock to move is 57 points between now and JUN 2010) , I would probably sell 50% of my holdings (45 contracts) and let the rest "ride." If the stock continues to rise, I would either sell another 50% of the remaining holdings or exit all together. If it starts to drop, at least sell at the break-even point and take a profit. Nothing wrong with taking a profit.
Personally, I would have never entered a long call without a hedge. Second, I think you paid too much for the option. Your option required a move over 50% just to break even. Now suppose you bought the JUN10 300 call and sold the JUN10 350. Your cost basis is less, and your profit % would be higher. Again, my target for your stock is 350. So, at this point, I would be looking for the exit and taking my profit, and looking for the next trade. There is no rule that you have to stay in a trade until expiration. I wouldn't roll this thing at all. Rolling is more costly than managing what you have, and it makes no sense to do so. If this was the only stock on the market, I would exit the trade for a profit as above. Then I would wait for a pullback, and do another spread using options 3-6 months out. You really need to give your trades more thought, IMHO
 
Thank you for the information. What I am trying to understand is when it is optimal to make the move. There can be many reasons why it is not a good idea but if for some reason makes sense, the move should be done, and there also should be optimal date to exp and price for the underlying stock. The time value varies a lot from being deep in the money to near the new strike, etc. So the basic more or less generic questing remains.
 
Quote from NHS:

Position:
90 contracts long CALL XYZ Strike 290 with exp in June 2010.

You think that the stock can go higher during 2010 to level +380 and you want to roll the position forward to September or December and up to strike 320.

At what stock level should you make the move forward and up? When the stock price is considered high (350-360) or low (320-330)?
More...
290 call ha s higher delta. Roll should be made at higher stock price.
 
Thanks.

Options very deep in the money more or less acts as the real stock when it comes to price movement.

To this roll could be added sell of calls even higher up than the new strike - if any hedge is needed.
 
Quote from jwcapital:

First, your stock has made a 50% move upward. Yet you have made only 15%, which at this point is better than nothing. You would have made more at this point just buying the stock and setting a trailing stop.
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How do you figure that the stock has risen 50%? OP's post reads like he bot ITM call. And on a 1 to 1 basis, one always makes more with the stock than a long call.
 
Quote from TheoHornsby:

How do you figure that the stock has risen 50%? OP's post reads like he bot ITM call. And on a 1 to 1 basis, one always makes more with the stock than a long call.
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I erred in the math, sorry
 
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