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  • Digg it UP - Time / Diagonal Spreads - Rolling the Position, Call Spread and Put Spreads - Rolling the Position

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    after September expiration
    might make a profitable trade.

    You could keep the position open and continuing in several ways.
    You could stay long the October 25 call naked. You could sell
    the October 30 call and become long the October 25 / 30 vertical
    call spread if you are bullish. You could sell the October 20
    call and become short the Octob
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    Rolling the Position

    Time spreads are unlike all the other strategies we have
    discussed before when we talk about rolling or continuing the
    position. In other strategies, the option component is limited
    to a single month. At expiration, the position disappears. It
    either transforms into stock or expires worthless leaving you
    with no option position. It is different in the case of a time
    spread because you are dealing with two different expiration
    months. After the front month expires, in addition to a
    potential stock position, you will still have an option position
    – the out-month option will still have time until expiration. To
    properly roll that position, you must first understand the new
    position you have inherited.

    Rolling the Call Spread

    Let’s look at the call time spread first. For the purposes of
    our example, let us pretend we are long the September / October
    25 call spread. If the stock were to close below $25.00 on
    expiration Friday of September, the September 25 calls would
    expire worthless and you would be left with a long October 25
    call position. From this position, you would have several things
    that you could do.

    First, you could just sell out the October 25 call. Hopefully,
    the combination of the expiration of the September 25 calls and
    their subsequent worthlessness along with the proceeds gained
    from the sale of the October 25 calls after September expiration
    might make a profitable trade.

    You could keep the position open and continuing in several ways.
    You could stay long the October 25 call naked. You could sell
    the October 30 call and become long the October 25 / 30 vertical
    call spread if you are bullish. You could sell the October 20
    call and become short the Octob
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    osition. It is different in the case of a time
    spread because you are dealing with two different expiration
    months. After the front month expires, in addition to a
    potential stock position, you will still have an option position
    – the out-month option will still have time until expiration. To
    properly roll that position, you must first understand the new
    position you have inherited.

    Rolling the Call Spread

    Let’s look at the call time spread first. For the purposes of
    our example, let us pretend we are long the September / October
    25 call spread. If the stock were to close below $25.00 on
    expiration Friday of September, the September 25 calls would
    expire worthless and you would be left with a long October 25
    call position. From this position, you would have several things
    that you could do.

    First, you could just sell out the October 25 call. Hopefully,
    the combination of the expiration of the September 25 calls and
    their subsequent worthlessness along with the proceeds gained
    from the sale of the October 25 calls after September expiration
    might make a profitable trade.

    You could keep the position open and continuing in several ways.
    You could stay long the October 25 call naked. You could sell
    the October 30 call and become long the October 25 / 30 vertical
    call spread if you are bullish. You could sell the October 20
    call and become short the Octob
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    ew
    position you have inherited.

    Rolling the Call Spread

    Let’s look at the call time spread first. For the purposes of
    our example, let us pretend we are long the September / October
    25 call spread. If the stock were to close below $25.00 on
    expiration Friday of September, the September 25 calls would
    expire worthless and you would be left with a long October 25
    call position. From this position, you would have several things
    that you could do.

    First, you could just sell out the October 25 call. Hopefully,
    the combination of the expiration of the September 25 calls and
    their subsequent worthlessness along with the proceeds gained
    from the sale of the October 25 calls after September expiration
    might make a profitable trade.

    You could keep the position open and continuing in several ways.
    You could stay long the October 25 call naked. You could sell
    the October 30 call and become long the October 25 / 30 vertical
    call spread if you are bullish. You could sell the October 20
    call and become short the Octob
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    be left with a long October 25
    call position. From this position, you would have several things
    that you could do.

    First, you could just sell out the October 25 call. Hopefully,
    the combination of the expiration of the September 25 calls and
    their subsequent worthlessness along with the proceeds gained
    from the sale of the October 25 calls after September expiration
    might make a profitable trade.

    You could keep the position open and continuing in several ways.
    You could stay long the October 25 call naked. You could sell
    the October 30 call and become long the October 25 / 30 vertical
    call spread if you are bullish. You could sell the October 20
    call and become short the Octob
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    after September expiration
    might make a profitable trade.

    You could keep the position open and continuing in several ways.
    You could stay long the October 25 call naked. You could sell
    the October 30 call and become long the October 25 / 30 vertical
    call spread if you are bullish. You could sell the October 20
    call and become short the October 20 / 25 vertical call spread
    if bearish.

    You could buy the October 25 puts and become long the October 25
    straddle if you felt the stock would become volatile. You could
    even sell the stock and create a synthetic put if you were very
    bearish. There are ways to create a new position that reflects
    any possible future outlook an investor can have.

    If the stock were to close above $25.00, then the September 25
    call would close in-the-money. At that time, you would be
    assigned your short September 25 call and that would translate
    into a short stock position. That short stock position that you
    received from the assignment of your short September 25 call
    along with the remaining October 25 long call position is the
    equivalent of a synthetic put. At this time, you could close out
    the position or keep it.

    The position is a bearish one so if you felt the stock would be
    heading down, you could keep the position on. You could sell
    another option of a different strike to set up either a bull or
    bear put spread. You could buy the October 25 call to create a
    long straddle. As you see, there are many different combinations
    that could be created.

    If you were short the September / October 25 call time spread
    and the stock expired under $25.00 on expiration Friday of
    September , then you would have a remaining position of a short
    October 25 call naked. Again, there

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