Rolling Up vs Closing and Re-entering

Last week I closed a TLT Dec 103 position early and established a new TLT Dec 111 position. A comment was posted asking why I didn't just roll the position up to the Dec 111 strike instead. I responded to the comment but thought this would make a good article.

By closing the TLT Dec 103 position I realized a gain of $273.50. Establishing a new Dec 111 position brought in another $209.00 of income with the potential profit of $238.00 if called and a combined total profit of $511.50. However, if not called, I would still have the realized profit from the Dec 103 position of $273.50, and the $209.00 of income generated by the Dec 111 position, for a combined profit of $482.50.

If I rolled the position instead, I would have had to buy back the Dec 103 call, at a loss, and sell the Dec 111 call for a total net debit of $392.50 with the potential profit of $515.50 if called. However, if not called, I would have a loss of $392.50.

So, by closing the Dec 103 and establishing a new Dec 111 position, I sacrificed $4.00 in profit if TLT closes above $111 but locked in a realized gain of $273.50, and would still end up with $482.50 if TLT closes below $111, rather than a loss of $392.50 had I rolled.

As it turns out, TLT is looks like it will close above $111, so rolling would have provided $4 more profit than closing and re-entering. If I could predict the future, rolling would have been the better option (no pun intended). However, since I can't predict the future, I'd rather take a sure gain by closing the existing position, and then re-entering to get a better return if not called. TLT could have just as easily gone down, in which case rolling would have generated a loss.