Identifier: C4T5L4 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Reconcile a roll as two separate trades. 2. Compare sale and exercise value. 3. Keep realized history separate from the new risk decision.

Prerequisite: C4T5L3.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A roll closes one position and opens another. It does not erase a loss, restore the original economics or postpone tax by definition. Expiry, strike, price and quantity of the new position create new exposure. Closing converts the option into market cash; exercise invokes its settlement; expiration resolves the right under the contract. Select among these actions by the remaining objective, current executable prices, instructions and cash needs. Original premium remains in the total performance ledger but is sunk for the forward-looking choice.

Price and return drivers

Roll cash flow = proceeds from closing the old long option minus cost of the new long option and both trading charges. For short positions, buying back the old liability and selling the new one can produce a credit while increasing duration or risk. Report old realized P/L and new maximum loss separately. Comparing a sale bid with exercise intrinsic is useful: a sale above intrinsic can preserve time value, but only if the bid is executable and settlement/funding fit.

Worked case

Originally buy1 European cash-settled putK95 at4 with entry fee10. On a later roll date atS90, old put bid6 and new90-day K90 put ask5, multiplier100. Sell old for600 less close fee10; old realized result=600−400−10−10=180. Buy new for500 plus entry fee10. Across all cash dates, net cash paid so far=410−590+510=330. The old180 gain is realized; the new right still risks its paid510 plus its future exit cost. It is incorrect to label the whole transaction a free hedge because the old sale exceeded its original cost.

Adverse case

At the new expiryS80,S90,S110, the new put pays1000,0,0. With a further10 settlement fee, total lifetime net is+660,−340,−340. These states use the new expiry and cannot be compared directly with holding the old shorter option without matching horizons. Before the new expiry, a supplied new-put bid4 would yield400−10=390; together with the prior−330 net cash this realizes+60. On the roll date, old intrinsic was5 but sale bid6, so exercise would forgo100 time value per contract before any different exercise costs.

Practical use

Record the close and new opening as separate fills and fees, with both expiry calendars. Verify any already-processed assignment before treating the old liability as resolved.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Roll only if the new strike, expiry and cost solve the remaining problem independently. Do not increase size merely to recover the old premium or maintain a preferred performance label. Close when protection is no longer needed and the bid is defensible. Intentionally lapse only after checking residual exercise value and instructions. Decline a roll if the new premium exceeds the insurance budget, or if physical delivery and a short leg would create obligations that cannot be funded.

Practice and references

Exercise: a short call originally received300 with entry fee10. Solution: It is bought back for500 plus close fee10; a new call is sold for450 less entry fee10. Old realized loss is−220. The roll-day net credit is450−10−500−10=−70, a debit despite the new premium receipt. Total cash across both openings and closing is220, but an open short-call obligation remains;220 is not final profit.

Takeaway: A roll is a realized close plus a new risk commitment; report both rather than treating a new credit as recovery. Reference links: product card, formula; glossary: Roll; Realized profit. Next: C4T6L1. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide | Class examination