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Nov
26
comment What are good conditions to roll a leap further out in time?
I see, so are you saying, since most of the time theta is the determining factor, that when volatility spikes up highly, its effect in the price is greater. At this time, the ratio (added to the bottom of the question above), is better for rolling out further in time?
Nov
26
comment What are good conditions to roll a leap further out in time?
Thanks. What is it that is the primary determiner of a price then in long term options? It makes sense what you're saying ... people don't expect the volatility to remain the same, but what then is driving that 1 year leap option price (say at the money)? Thanks.
Nov
26
comment What are good conditions to roll a leap further out in time?
Thanks. Can you expand on the last part, why rolling on inflated volatility is good? Obviously one will gain more on the sale, but won't one pay more for the purchase? E.g. Let's say I can sell the nearer term leap for \$5, but have to buy the longer term leap for \$8, paying \$3 more. If market & equity volatility were low, and the nearer term leap was perhaps \$3.50, would the longer term leap likely be more than \$6.50 (\$3.50 + \$3.0), or less? ... I'm going to expand my question so that it's clearer with this.