Roll Down

AAA

DEFINITION of 'Roll Down'

The replacement of an option with a new option that has a lower strike price. The use of a roll down means that the investor does not have to exercise the option. Instead, the investor extends the time period over until the investment expires.

INVESTOPEDIA EXPLAINS 'Roll Down'

A roll down strategy can help an investor mitigate losses when the underlying asset is declining in value. For example, an investor who has purchased a securities option to purchase 100 shares believes that the value of shares is going to decline. The investor sells a call with a higher strike price and earns a premium. The stock does decline in value and the call is now worth less. The investor cancels the call and makes a profit. Then the investor sells another call with a new strike price and receives a premium on that option as well.

RELATED TERMS
  1. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Roll Forward

    To extend the expiration or maturity of an option or futures ...
  4. Options Roll Up

    The move from one option position to another that has a higher ...
  5. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  6. Short Put

    A type of strategy regarding a put option, which is a contract ...
Related Articles
  1. Naked Call Writing: A Risky Options ...
    Options & Futures

    Naked Call Writing: A Risky Options ...

  2. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  3. How To Manage Bull Put Option Spreads
    Options & Futures

    How To Manage Bull Put Option Spreads

  4. Out-Of-The-Money Put Time Spreads
    Options & Futures

    Out-Of-The-Money Put Time Spreads

comments powered by Disqus
Hot Definitions
  1. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  3. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center