Hi there,

If the stock moves up in price, should we roll up the short call options since its time value is now very little as it gets more in the money.

This is the example:

If I sell a May 40 call and sell a May 45 put when the underlying is at $42. When the underlying moves near $45, the first thing we must do is to buy back the 45 put and sell June 47.50 put. This is for protection should the s=underlying moves higher.

What happens to the short call, the May 40 call? Do we roll it up too since its time value is now very little as it gets more in the money?

Thank you.

KY

Good day KY,

Thanks for asking this brilliant question, whether to roll up the short call.

Yes, as the underlying goes up, the far ITM short call has less time value.

Some options strategists like to roll the call up, nearer to the underlying price. Some leave it there, untouched.

Here are Pros and cons of rolling up the short call.

One will get more time value if they roll up the short call, and roll forward to another month. The question is, how near? If it is just one strike price below the underlying, they are afraid of the reversal of the underlying, and they have to roll back down for protection again.

When you roll the short call, you have to buy back at a higher spread. Normally, ITM optins tend to have higher spread, 20-50 cents spread. You have to pay commission. Then, you have to sell into further month, which also has higher spread the the front month options (current month options).

If you do not roll up, and the stock is running up, the delta is not too friendly on the front month ITM short call. Rolling up and forward the short call will help in reducing the sharp rise in delta.

If you do not roll up, if the stock reverses, you are in a good position because the delta for short call is less damaging now, and the the delta increase in back months short put is, surprising, not menacing.

There is no straight forward answer whether to roll up the short call or not. We will leave it untouched. Let they be assigned on expiration, so we do not have to deal with the spread. Your short call premium is collecting interest too.

In fact, if you have two sets of short guts on any underlying, you can try one set with roll-up, one set untouched. Then you will see which is better, depending which way does the underlying goes.

If the underlying keeps rising, the roll-up short call technique is better. If the stock reverses down, the original short call is much better.

Thanks for the excellent queston again. s$0.10!
___________________

Any commentary or illustration generated in this forum is provided for educational purposes only. You must decide your own suitability to buy or sell options. This is neither a solicitation nor an offer to buy/sell stocks or options. Commission was not taken into calculation. Note: You have to know the risk of options writing before execution, especially naked call/put writing, bull/put spread, covered call writing, short straddle, short strangle, short guts, short/long iron butterfly, short/long wingspreads and short/long box.

thank you sun for this well-illustrated reply. :)

things are clearer now. :)

have a nice day!

ky

Dear KY

We retype the reply above because it has some typo and spelling error. The content remains very much unchanged.

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Thanks for asking this brilliant question, whether to roll up the short call.

Yes, as the underlying goes up, the far ITM short call has less time value.

Some options strategists prefer to roll the call up, nearer to the underlying price. Some leave it there, untouched.

Here are the Pros and cons of rolling up the short call:

We will get more time value if they roll up and roll forward to another month the short call. The question is, how near? If it is just one strike price below the underlying, we are afraid the underlying will reverse down, and we have to roll back down for protection again.

When you roll the short call, you have to buy back at a higher spread. ITM options tend to have wider spread, 20-50 cents spread sometimes. You have to pay commission by buying back. Then, you have to sell into further month, which also has wider spread.

If you do not roll up, and the stock is running up, the delta is not too friendly on the front month ITM short call. Rolling up and forward the short call will help in reducing the sharp rise in delta. This is the advantage of rolling up the far ITM short call.

If you do not roll up, if the stock reverses down, you are in a better position because the delta for far ITM short call is less damaging now, and the delta increase for back-month short put is, surprising, not too menacing. This is the advantage for not rolling up the short call.

There is no straight forward answer on whether to roll up the short call or not. We prefer not to roll up the short call. Let they be assigned on expiration, so we do not have to deal with the spread. Sometimes you get early assignment if they are too far ITM. Anyway, your short call premium is earning your interest everyday, the deeper ITM premiumm, the more you earn the interest.

In fact, if you have two sets of short guts on any underlying, you can try one set with roll-up, one set leaving it untouched. Then you will see which is better, depending which way the underlying goes.

If the underlying keeps rising, the roll-up short call technique is better. If the stock reverses down, the original short call is much better.

Thanks for the excellent question again. s$0.10!
___________________

Any commentary or illustration generated in this forum is provided for educational purposes only. You must decide your own suitability to buy or sell options. This is neither a solicitation nor an offer to buy/sell stocks or options. Commission was not taken into calculation. Note: You have to know the risk of options writing before execution, especially naked call/put writing, bull/put spread, covered call writing, short straddle, short strangle, short guts, short/long iron butterfly, short/long wingspreads and short/long box.

KY, I guess you do not have to roll up your ITM short call for now, the market reversed down a biT these two days. Now, the Qs has to break $44.8 to go all the way up, to another resistance, $46 and $48.

Sun, you are a wizard, an options wizard.

hi JK,
yes, market came down these two days... :) guess no need to do the roll. :)