Adjusting the expiration date

How to adjust the expiration date? Want to illustrate my thoughts with an example

Suppose you bought call options on a stock that expire in three months when the stock was trading at $120 per share. You paid a premium of $5 per share for the options, giving you the right to buy 100 shares of the stock at $125 per share anytime within the next three months. This means that you need the price of the stock to rise above $130 ($125 + $5) before the expiration date to make a profit.

After a month, the company releases disappointing earnings reports, and the stock price drops to $110 per share. As a result, the value of your call options falls significantly, and it appears unlikely that the stock will rise above $130 anytime soon. To adjust your position to reflect this new information, you may consider extending the expiration date of your call options to give the stock more time to recover.

One way to do this is to roll out your options contract by selling your existing options and simultaneously buying new call options with a later expiration date. For example, you could sell your current call options with a three-month expiration date and buy new call options that expire in six months. The premium for the new options will likely be higher due to the additional time value, but this also gives you more time for the stock price to recover.

Alternatively, you may choose to simply buy new call options with a later expiration date while holding onto your existing options until they expire. This would allow you to continue to benefit from any upside potential in the stock while also giving you the option to hold onto the new options if the stock price doesn't recover as quickly as expected.

In both cases, the key is to adjust your options position based on your updated market outlook. By extending the expiration date of your call options, you can potentially improve your chances of profiting from a recovery in the stock price. However, it's important to remember that options trading involves risks and may not be suitable for everyone. It's best to consult with a professional financial advisor before making any investment decisions.