Along these lines, a thought experiment I just conducted has led me (independently) to a similar conclusion. The question I posed myself, and went looking on the TSLA option chain to explore, is how far ITM is too far? I got thinking about this in the context of the 775 cc I have expiring this week. I already know that I have some good roll options (I think I can roll up $40 on a 2 week expiration contract).
So how much deeper can that option go before it's time to take one of the options laid out by
@bxr140 (or as I summarize them - abandon ship)?
I started with a $500 call expiring this week - what could I roll that to? That's $350 ITM or 41%. Even rolling out a month I couldn't get the strike to budge (given a net credit constraint). It wasn't really close either, though that far ITM has $10 between strikes.
Tried again with a $600 call expiring this week. Same problem - the strike still wouldn't budge for a 2-3 week roll, and that's the window I want to stay in (at least today - ask me in a month and I might well have a new answer). That is 29% ITM.
With a $700 call expiring this week, I started being able to budge the strike a little bit. A 2 week roll would move 700 to 705 and a 4 week roll would move me from 700 to 715 or 720. That's 18% ITM.
My conclusion is that I would like to keep my rolling options within 10% of the share price, but I can let that get a bit deeper and still have a reasonable chance at recovery (while earning strike to strike value that makes the roll valuable).
Of course this is all using TSLA options, and is relative to today's DTE (it's mid-week) and IV. These factors change and they matter.
These results are important to me in the context of the pattern I've been exploring the past couple of weeks. That 775 call is halfway between the share price and the strike where further rolls start getting difficult and/or not financially worth continuing.
As a result the pattern I'll apply on the next roll (and I expect any rolls in the future) is to roll anything ITM as far as I can subject to a small net credit (~$2/week at today's share price). The idea is to do what I can, every roll, to cover as much of the ITM deficit as possible. This will work as the ITM option is paired with an OTM option that is performing really well (well enough that it's results by themselves makes the overall position very good).
And if the ITM option is near enough that it can get back to the .40 delta OTM I'm targeting (today - ask me again in a week or 4, and I might have a new answer), then roll to that .40 delta with whatever net credit is left over.