If your option is about to expire, but you'd like to keep it open, you may choose to roll out, up, or down, whether you're either a holder or a writer. Rolling over generally entails closing out your first position and opening a new one with the same characteristics except for the expiration date or strike price.
When you roll out, you select the same option with a later expiration date. If you own an option, you might make this choice if you believe the underlying will move in-the-money at a later date.
When you roll up, you open a new position with a higher strike price. You might do this if you think the underlying stock price will continue to rise.
Lastly, you can choose to roll down by opening a new position with a lower strike price. Investors typically roll down when they believe the underlying stock's price will either go down or stay the same in the future.
Although rolling your position may result in a higher profit, it's always important to do significant research on the stock before following this exit strategy. Engaging in the strategy because you're not happy with the results of the first contract won't guarantee returns with the second and may make a bad situation worse.
Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Application and Agreement, Brokerage Account Agreement, and Characteristics and Risks of Standardized Options (available at your local Scottrade branch office or from the Options Clearing Corporation at 1-888-OPTIONS or by visiting www.888options.com). All option accounts require prior approval by Scottrade. Market volatility, volume, and system availability may impact account access and trade execution. Supporting documentation for any claims will be supplied upon request.