The options in this spread all share the same strike price, but they involve
two different months—April and May. In this example, the trader is long
synthetic stock in April and short synthetic stock in May. Like the
conversion, reversal, and box, this is a mostly flat position. Delta, gamma,
theta, vega, and even rho have only small effects on a jelly roll, but like the
others, this spread serves a purpose.
A trader with a conversion or reversal can roll the option legs of the
position into a month with a later expiration. For example, a trader with an
April 50 conversion in his inventory (short the 50 call, long the 50 put, long
stock) can avoid pin risk as April expiration approaches by trading the roll
from the above example. The long April 50 call and short April 50 put
cancel out the current option portion of the conversion leaving only the
stock. Selling the May 50 calls and buying the May 50 puts reestablishes
the conversion a month farther out.
Another reason for trading a roll has to do with interest. The roll in this
example has positive exposure to rho in April and negative exposure to rho
in May. Based on a trader’s expectations of future changes in interest rates,
a position can be constructed to exploit opportunities in interest.