← BeginnerLesson 18 · 4:12
When do you close or roll a sold option?
Summary
You can close a sold option by buying it back, and work out your net as what you took in minus what you paid to get out. You can work out a roll's net credit or net debit. You know rolling doesn't erase a loss, it moves the risk to a later date.
Key terms
- closing (buying back)
- rolling
- Buying back an old option and selling a new one with a later date, a new strike, or both.
- net credit
- When a pair of trades brings cash in overall.
- net debit
- When a pair of trades sends cash out overall.
- closing
- Ending a sold option by buying the same option back, which ends your duty.
Check yourself
Answer each question to see why the right answer is right.
1. You sold the $100 call for $345. XYZ falls to $95 with 15 days left, and the model puts the buy-back at about $66. What is your net if you close?
2. XYZ is at $110 with 10 days left, and buying back the same call costs $1,007. What is your net if you close?
3. What does rolling a sold option mean?
4. You pay $1,007 to buy back the old call and sell a 40-day call with a strike of $110 for $439. What is the net?
5. You roll into a 40-day call with a strike of $100 for a net credit of $91. Does that fix the $662 loss?
Finished the video and the quiz? .