Delta Hedging will kill my portfolio

Discussion in 'Options' started by matador04, Oct 26, 2007.

  1. Nothing new there...

    So how do I protect myself if one leg of a condor is closing in on me?
  2. Any ideas?

    Portfolio looks like this:

    short SPY NOV 157 call, long SPY NOV 161 call
    short SPY NOV 142 put, long SPY NOV 138 put

    I'm almost positive the Fed will cut by 25 bps on Tues, thereby causing a drift upwards passed by critical point of 157.
  3. First the title is misleading as you are not delta hedging, you are trading aneutral type of position in the form of an Iron Condor.

    If you are almost positive that the market could run to your short strike then get out and wait for the move to occur and then put on an IC perhaps. The worst thing you can do is watch a position run at you and then pass you by with a significant loss.
  4. Would you suggest using the underlying at all?

    I suppose closing the one leg out until after announcement will help, but the vol will be completely different.
  5. 2mnytrdz


    optioncoach is right. This is what I plan on doing. Trying to hedge with the underlying will most likely make things worse for you. Especially with all that volatility and whipsaw action. Sure, you might not be able to get the same credit back after everything settles, but that is much better than taking a hit. Especially, if you could have avoided it. You keep the control of your positions while you can. If not, the market will take control and you'll be left there wondering what happened and where your capital went to.
  6. sugar


    I'd say that IC is a delta neutral strategy. You can hedge you position frequently or use an hedging strategy more quiet but you're trading, in the last case, a neutral strategy too.

    If the market attack your bull call spread and then you roll your position up 15 points, for instance, you're really doing your delta more neutral.