Rolling means first closing out an existing position,
either by buying back the option you sold, or selling the option
you bought. Next, you open a new position identical to the old
option but with a new strike
price, new expiration
date, or both.
If
you hold an option and you roll before expiration, your old option
might have some time value left, which means you might be able
to earn back some of what you paid. If you wrote an option, it's
possible that rolling might reduce your profit from the initial
transaction, but you might roll anyway, if you don't want
to risk having to give up the stock if the existing option is
exercised, for example.
You might also consider rolling if a strategy
you chose hasn't been successful, but you think that your
prediction for a stock's movement is applicable for the
coming months.
Types of rolls
Rolling up. You open a new position
with the same expiration but a higher strike price.
Rolling down. You
open a new position with the same expiration but a
lower strike price.
Rolling out. You
open a new position with the same strike price but
a later expiration date.
If
you hold an option and you roll before expiration, your old option
might have some time value left, which means you might be able
to earn back some of what you paid. If you wrote an option, it's
possible that rolling might reduce your profit from the initial
transaction, but you might roll anyway, if you don't want
to risk having to give up the stock if the existing option is
exercised, for example. 