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Zecco.com » General Investing » Options Trading » What is this strategy?
Last post 05-06-2008, 5:52 PM by SeanK. 5 replies.
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  •  04-11-2008, 11:15 AM 26812

    What is this strategy?

    Reply Quote
    Please, somebody know what is long/short rollout option strategy? It in the box menu in the zecco trading platafform with the other strategies (Basic, Covered call, etc) but I don't  know how I use it.

    Thank you very much.

    Argenis
  •  04-12-2008, 9:49 AM 26870 in reply to 26812

    Re: What is this strategy?

    Reply Quote
    Yes, please someone help us.  I have been waiting for a reply also.
  •  04-12-2008, 10:22 AM 26871 in reply to 26870

    Re: What is this strategy?

    Reply Quote
    I think you should try Google search for the word "option strategy".   Since many people who has dedicated  countless hours explainning options trading in details, I wouldn't dare trying to repeat them here (becuse it could take weeks).  Here is some links:

    http://en.wikipedia.org/
    http://www.optionseducation.org/resources/literature/files/equity_options_strategy_guide.pdf

    I also recommend that you read "Getting Started in Options" by Michael C. Thomsett.

  •  05-06-2008, 3:53 PM 28576 in reply to 26871

    Re: What is this strategy?

    Reply Quote
    The problem is that Zecco is using terminology that is not standard and confusing the issue. The  long/short rollout is not anywhere to be found in any of the explanations or the glossary. Is there a video tutorial of this?

    The explanations they give in the glossary do not match the real action on the web. For instance, the stop is referred to in a way to allow you to trade through it up or down. However, the implementation is strictly trading down through it. Trading up can only be a limit order.

    ??? anyway... I am also curious to find out what long/short rollout is.
  •  05-06-2008, 4:19 PM 28579 in reply to 26812

    Re: What is this strategy?

    Reply Quote

    A long/short option rollout is a term swap on the option.  I think it's easiest to see it by example, so we'll use one of the trades I've employed recently.

    This would be an example of a short option rollout.  I had 30 WM April '08 calls @  11 covered.  Since the stock was trading over $11 the week of the option expiration, I "rolled out" of the April '08 calls into the May '08 calls.  When you do this, you are simply exchanging time value for the risk of being exercised.  So, I simultaneously bought to cover the 30 WM April '08 calls and shorted the May '08 calls @ 11 which results in a small time-value profit from the difference in premiums.

    A long option rollout would be the exchange of two long option positions for the cost difference in time value (the opposite trade).  A short rollout is typically on the credit side (makes you money in the premium difference) and a long rollout is typically on the debit side (costs you a little in premium difference).

    Each rollout has its own set of advantages and disadvantages.  A short rollout is usually employed to "rehabilitate" a stock price.  In the case of WM, I'm trying to get my basis in that stock as low as possible in order to absorb its volatility.  I do this by taking small premiums from the time-value of short term options.  The downside to this strategy is that I run the risk of having my position taken from me at a less-than-optimal price, and I can't participate in the strong 20%-30% upswings that happen occasionally.

    By constrast, long option rollouts have the decided advantage of letting you select your profit-taking opportunity for a very low capital commitment.  Also, by rolling the calls, you absorb much of the cost of letting out-of-the-money options expire and subsequently having to purchase back into the same position.

    Hope this clears it up for you and that I haven't just muddied the waters.

  •  05-06-2008, 5:52 PM 28585 in reply to 28576

    Re: What is this strategy?

    Reply Quote
    I think this is for covered call writers.  The long refers to the stock you own and the short is the call(s) you wrote against the stock.    When you rollout the calls, you are buying back the current short calls you have and selling the next month's calls.  You would do this a few days before expiration. 

    -Sean
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