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Selrac,

You wrote, If you write a put and close to expiration you see that the stock price is below the strike price, will I benefit by rolling over the contract?

You get a premium when you sell the put initially, so what happens if you roll over the position? Do you get an additional premium? Or will just create a debit?

Basically, I'm thinking on what is the best way to prevent a big loss when you see that the underlying stock is going below the strike and below the premium. Will rolling over the position help?


Rolling a position basically means closing the current near-dated position and opening a longer-dated position. It's two transactions. Think of them independently.

So you sold a put on a security and it's ITM. To close it out, you have to buy a put with the same terms to close the position. That causes you to realize the current loss in your put.

Now you're talking about taking that loss and doing what with it? Selling another put with a longer date? Well, I suppose in the near-term that will get you a little cash to help cover your loss... It will also create a new opportunity for loss if the stock continues to decline.

Personally I'd treat selling a put like a limit order where you get paid to place the order. The only difference here is that to acquire the stock, it will (probably) have to be ITM when the option expires. Is that not what you were after?

Of course if you think the underlying security is no longer a good bet, I might just close the position and move on to something else. Or maybe you should buy a put instead. :-)

- Joel
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