Looking for advice on this scenario regarding equity options:
Let's say you have a position, for sake of explanation let's say $10k, and it goes down 30% and is now worth $7k. If you're not going to close out and take the loss, is it advisable to roll that $7k into a lower strike position to increase your delta/gamma? I see it as you're still in for the $7k, but you're increasing your delta pending an upside move. For further clarity, we're talking about options with between 30-60 days to expiration.
Is this the right move as opposed to adding to a losing position which I rarely find as a smart move.
Any advice appreciated. Thx.
What are you trying to do exactly?
Suppose you bought a call initially and the price of the underlying tanked, would lowering your strike not effectively still be adding on to the portfolio of your initial position (albeit at a lower strike with higher probability of expiring ITM, but this is compensated with a higher premium)? You have got to bear in mind the new option at the lower strike will definitely be more expensive than your initial option would be at this point considering it's closer to being ITM.
If the above is the context in which you're executing the trade, I don't see how this is not "adding to a losing position" as you're effectively betting on the same directional move as you had done originally (obviously, you could argue if the difference between the original and new strike is significantly large, there's every chance your new option would cover sufficiently the losses of the initial one at expiry).
Tyrets: Your logic doesn't make any sense at all and you wouldn't be taking off any 'losing' position. All you are doing in your scenario is buying a vertical spread where the 2nd strike is the same as the one you were previously long.
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