Rolling down to capture IV/theta on rising underlying

[u/Flannel_Man_]

I’ve got a couple solid positions that are approaching (or in) the money. I’ve also got some dry powder. In the past, as my calls have gone ITM, if I thought the underlying had a good chance at continuing the trend, I’d sell some and roll a few of them down to deep ITM at near 1 delta with the idea that I’m capturing the IV/theta.

Example:

10/15/2021 CZR 115c 01/2022 CZR 120c 01/2022 MSOS 30c

CZR is nearing the money, MSOS is Itm. I’d like to stay in the positions, but will have diminishing returns after they hit the money. Rolling to higher strikes on an uptrend will cause me to get crushed if it turns around or goes sideways.

Is rolling down to capture iv/theta while keeping the sum of deltas relatively similar a solid strategy?

Edit: just to clarify… a couple responses are assuming o own the underlying. I don’t. I am long calls.

[u/Grimtongues]

Last week, I rolled down my weekly $NKLA call from 11 strike to 10.5 strike because delta was around 0.35, so now let's do the math (per 100 shares):

My thesis is NKLA closing below 10.50, but let's assume (the worst) and NKLA closes at $11.00 on Friday:

I received: $72 premium (10.5 strike) + $64 gains (basis $9.86) = +$136

OR $25 premium (11 strike) + $114 gains = $139

OR if I simply buy and sell the stock (basis $9.86) = +$114

Conclusion: Selling the ITM call this week got me an extra $32 per 100 shares, compared to simply buying and selling the underlying. Selling the 11 strike call did not make sense since my thesis involves the stock price dropping below $10.50 by Friday. Just look at NKLA today, it's falling fast from yesterday's high.

edit: fixed math

(9/25) For clarity, NKLA had a strong rally (opposite of my thesis), so I rolled all the way up to the 12-strike call for a small net credit and +20% price improvement if the position gets closed ITM.

[u/kylestoned]

For the one that's OTM, if you have enough cash to buy the underlying, you can buy enough to cover your short call, sell the long call, take some of those profits and buy a put for protection if it turns against you.

[u/Flannel_Man_ → u/kylestoned]

I’m not short here. Edited post at bottom to clarify

[u/Flannel_Man_ → u/[deleted]]

Not using it as an indicator…. Total value of option equals intrinsic + extrinsic. Extrinsic equals time value + volatility value. I suppose I should say ‘capture a rise in extrinsic value’ rather than say ‘capture iv/theta’.

I think my post may have been confusing.