Roll 'Em Out- Introduction
Roll 'Em Out Introduction The previous demonstrated that by writing LEAP puts on higher-quality issues one or two steps below the at-the-money market price, it is possible to increase the rate at which the options expire out of the money to levels ranging from 92 percent to 97 percent. An impressive result, to be sure, but more impressive results can be achieved by rolling out any LEAP puts that appear to be winding up in the money as expiration approaches. This entails a two-step process of (1) buying back the LEAP puts shortly before the expiration date (thus closing out those positions), and (2) writing an equivalent number of LEAP puts with expiration dates either one or two years away. You saw that there are numerous ways to carry out this type of mitigation strategy. Besides selecting the expiration date, you can also choose an appropriate strike price. Suppose an at-the-money LEAP put had been sold on a stock with a volatility of 0.40 and the pri