Can you give an example of rolling out a put to the next month?
We can use one we almost just did. We had some spreads on LU with December (1999) 80 puts as the leg we sold. The last few days before expiration the stock was faltering, having a hard time breaking above 78. We were coming down to the wire, and on the last day of the expiration period the stock was still below 80. We were looking at January 80 puts, even January 75 puts as rollout candidates. The December 80 puts were asking about 3/16 more than the actual amount in the money. The January 80 puts were in the $4-$5 range. It would have been easy to roll out and still bank profit. The January 75 puts were trading in the $2-$3 range. We could have rolled out to those as well, but the profit margin would have been really reduced: while we would not lose money if LU stayed above 75, we would have tied up our money for half of the December expiration and all of the January expiration period for very little gain.
As you know, the key to really building wealth playing the spread and put selling game is to continually take in those 20% to 35% gains each month on our money. Spinning your wheels for two months on a sizeable chunk of cash sets you back. Still, the main point is not losing your capital. By rolling out you can live to play again. Moreover, if you have confidence in the play, you can still make money, indeed even more money at times, by rolling out to the same strike but the next expiration period. If the stock rallies up as anticipated, you are in great shape.
As for the mechanics, we usually buy back first then sell the puts. There are times, however, that we will reverse that order. When the stock rising, but is not going to make the point needed to avoid assignment and we know we are going to have to roll out, we can sell the next month's puts to capture more premium and then buy the shorter term puts back when the stock has run up as far as it will for the day. That way we stretch the premium we take in buy selling when the puts have a higher value and buying the others back when they have lower value after the move up.
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