Rolling Option

AAA

DEFINITION of 'Rolling Option'

A contract that offers a buyer the right to purchase something at a future date, as well as the choice to extend that right, for a fee. Rolling options are most commonly used in real estate construction and development. They allow builders to reduce the risk of buying and holding large tracts of land before they know if anyone will be interested in purchasing whatever they construct.

INVESTOPEDIA EXPLAINS 'Rolling Option'

For example, a land developer may offer a homebuilding company a rolling option to buy lots. If the builder quickly sells the homes it builds on those initial lots, it may exercise the option and purchase additional lots. If the homes aren't selling as quickly as the builder hoped, but the market still looks favorable, the builder may pay a fee to roll the option forward another year, or whatever time period was agreed upon in the contract. This way, the builder maintains the option to buy more land, but doesn't make the financial commitment of actually purchasing the land.



RELATED TERMS
  1. Perpetual Option - XPO

    A non-standard financial option with no fixed maturity and no ...
  2. Embedded Option

    A provision in a security that is an inseparable part of the ...
  3. American Option

    An option that can be exercised anytime during its life. American ...
  4. European Option

    An option that can only be exercised at the end of its life, ...
  5. Exotic Option

    An option that differs from common American or European options ...
  6. Index Option

    A financial derivative that gives the holder the right, but not ...
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

  2. Home & Auto

    Why Housing Market Bubbles Pop

  3. Home & Auto

    5 Mistakes Real Estate Investors Should ...

  4. Home & Auto

    How To Assess A Real Estate Investment ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center