Rolling Option

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.

BREAKING DOWN '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. Options Roll Up

    The move from one option position to another that has a higher ...
  2. Construction Loan

    A short-term loan used to finance the building of a home or another ...
  3. Roll Down

    The replacement of an option with a new option that has a lower ...
  4. Floor Loan

    In real estate construction, the minimum loan that a lender agrees ...
  5. Roll Back

    In options trading, exiting one position and entering a new one ...
  6. Land Value

    The value of a piece of property, including both the value of ...
Related Articles
  1. Options & Futures

    How To Make Money WIth Real Estate Options

    Buying real estate options is one way to invest in real estate at a lower entry cost.
  2. Retirement

    Asset Builder: Is This Robo-Advisor a Good Bet?

    Is robo-advisor Asset Builder right for you? It all depends on the type of investor you are.
  3. Home & Auto

    New Construction's Hidden Costs Can Burn Buyers

    Before you buy that brand-new home, read this first. There are some things you should know about.
  4. Credit & Loans

    Getting A Mortgage When Building Your Own Home

    It's much harder to get a loan when you're building a home, not moving into one. Here's where to look and what to expect.
  5. Home & Auto

    Uncover The Next Real Estate Hot Spot

    Real estate land speculation is a way to get in on a hot investment before a boom hits.
  6. Options & Futures

    Rent To Own; Own To Rent

    This method can help first-time buyers afford a home using a rent-to-own strategy, and it can also be good for investors.
  7. Real Estate

    How to Keep a Land Investment From Going Bust

    Investing in land can yield big returns. But investors should consider their goals, as well as the following details, to make the deal a success.
  8. Options & Futures

    Give Yourself More Options With Real Estate Options (PEI, CME)

    Real estate options have many benefits, including a smaller initial capital requirement.
  9. Professionals

    Exchange Traded Options

    CFA Level 1 - Exchange Traded Options. Contrasts over the counter options from those traded on the exchange. Discusses the characteristics of many exchange traded options.
  10. Options & Futures

    Introduction - Day Trading and Options

    Options have not been a tradition part of day-trading strategy, but this is quickly changing.
RELATED FAQS
  1. What are the differences between the installment method and percentage of completion ...

    Learn how businesses recognize revenues and report them under the installment method and percentage-of-completion method, ... Read Answer >>
  2. What does it mean to roll a derivative contract?

    Find out more about derivative securities, how to roll forward a derivative contract and what it means when a derivative ... Read Answer >>
  3. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
  4. What is the difference between share purchase rights and options?

    Discover the difference between share purchase rights and options, which are essential to understand when deciding to invest ... Read Answer >>
  5. How do I measure option liquidity?

    An option is a financial instrument that gives the holder the right to purchase shares in a company at a certain set price ... Read Answer >>
  6. What is the difference between open interest and volume?

    Learn more about options, what options' volume and open interest are and the difference between volume and open interest ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. 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 ...
Trading Center