OPENING: /GC DEC 26TH 1610/1620 SHORT CALL VERTICAL... for a $90 credit.
Notes: Delta hedge. Put on before the pop, unfortunately.
Deltahedge
OPENING: IWM DEC 23RD 116/119 SHORT PUT VERT (DELTA HEDGE)My current IWM positions are skewing more delta negative than I would like, even after rolling up the short put sides of those yesterday to delta balance. Much as I hate to do it here (general rule: buy on weakness, sell on strength), I'm adding in a "smidgeon" of IWM long delta here selling the as nearest as I can get to the 20 delta strike on the put side.
If my net IWM delta skews back long, I'll add in the oppositional call side to this spread, creating a full iron condor in the Dec 23rd expiry.
Filled for a .38 ($38)/contract credit ... .
DELTA HEDGE: SOLD RUT/IUX AUG 29TH 1120/1130 SHORT PUT VERTICAL... for a 1.10 ($110) credit.
Here, I'm adding a touch of long delta into an existing RUT position (an iron condor) for which I do not feel comfortable rolling the short put side up further to protect that particular setup from further upside. Additionally, I get the side benefit of just adding a little long delta to my entire portfolio, which (no surprise) is a bit more net delta short than I'd like at the moment with this up move.
Naturally, this creates an imbalance between call side units and put side units in my RUT position. However, I'll keep an eye on the entire RUT positions' net delta and match this put side up with a short call vert in the same expiry should price roll back to the put side and cause my net RUT position to skew delta long.
OPTIONS TIP: USE DELTA HEDGES SPARINGLYPictured here is one of my broken index setups. As price has moved up, short delta in the setup has increased, and I have defended the call side somewhat by rolling the put side toward current price, which increases the long delta in the setup. At some point however, rolling the short put side toward current price becomes unproductive because there is too little time left until expiry and/or you can't get enough out of the roll to make it worthwhile. The setup is still net short delta -- what to do?
One option is to "delta hedge" by adding a totally separate setup in a different expiration to take on the job of defending the call wing from further upside. In this case, I could consider adding long delta (since my net delta is short) using a short put vertical (which is a delta positive setup) in an expiry some time in August.
However, I want to be careful doing too much of this. First, adding a separate setup increases risk. For example, if price whipsaws back to the downside, I could very well find myself having to defend two put sides, whereas now I would only have to potentially defend the one pictured here. Secondly, should we get a down move, the long delta portion of the setup would increase incrementally, since I would now have on one more long delta unit than I have short delta units, and I could find myself scrambling to balance overly long delta in the setup, essentially chasing my tail in an anally retentive effort to keep the setup delta neutral.
For these reasons, I do any delta hedging I feel I have to do small and sparingly and only in circumstances where I can't comfortably or profitably roll a defensive side. Additionally, I set up a delta hedge as though it were an "original setup"; I don't try to move it in closer to current price to get more credit out of it to make up for the losses experienced by the side I'm defending, since again I want to lessen the possibility that my delta hedge will become an entirely separate headache if price decides to whipsaw back into it. Thirdly, I generally take it off as soon as it's served its purpose and I can do so profitably (e.g., the side I'm defending is reaching expiry, and I'm on the verge of rolling it anyways). In some circumstances, "profitably" for a delta hedge can be basically anything more than scratch ... .
