Rolling Deep In-the-Money Long Options

By Lawrence G. McMillan

One of the standing guidelines that appears in every issue of The Daily Volume Alerts is:

“In positions with just outright long options (including long straddles), roll if that option becomes 10 points in-the-money or more.”

A recent subscriber asked a logical follow-up:

What should I roll to?

My answer:

As a general rule, roll to the at-the-money option with the same expiration. If expiration is very near (such as expiration week), roll out approximately three weeks (or four weeks if weekly expirations are not available).

Why Roll?

Rolling isn’t about changing your market outlook—it’s about managing the position.

As a long option moves 10 points or more in the money, its delta approaches 1.00, meaning it begins behaving much like the underlying stock. Much of the option’s value has become intrinsic, so the leverage that makes long options attractive begins to diminish.

Rolling back to an at-the-money strike can...