I have a hypothetical situation here: Dec ES Futures: 1453.50 Oct 1350 Put: 17.10 Trade: Short 1 Dec ES @ 1453.50 Short 5 Oct ES 1350 Puts @ 17.10 The reason I sold 5 of the 1350 puts is because I find out that its delta at the time is 0.20, so to make my position delta neutral I sell 5 contracts (0.20 x 5 = 1.0) . Today: Dec ES closes at 1471.50 (I know this today's SPX close..but just follow me ) Oct 1350 Puts close at 14.00 (delta is now 0.15) My net delta for this position is now -0.25. Which is still pretty close to delta neutrality so, I'm comfortable with that. I am however incurring a paper loss of $250. If ES keeps moving higher, I lose on the futures but, I make money on the put option. As ES gets higher, my delta gets closer to "0". I can always close out the put take the profit and sell another 5 lots on an option on a higher strike with a delta of around .20 to bring me back to delta neutrality. Now....what if ES keeps moving lower?? Where/What would be my adjustment point? When ES keep moving lower, the futures is making money, but my put option position is losing money and net delta on just the option position is getting closer to 1. Would I add another futures contract? I hope my scenario and question makes sense, if you need clarification, please let me know. If someone could post a P/L profile for this position, that would be great Thanks. Daytrader85

Since the options are on the futures contract, the ES delta is 1. The 0.5 delta would apply if you used the cash index options to hedge the futures, since they have a multiplier of 100 and the futures have 50.

Here's another question that might be a little easier to answer - I hope atleast one of you. Let's assume that I hold the short 1 ES (@1453.50) and the short 5 Oct 1350 Put (@17.10) till October option expiration. At October expiration, ES settles at 1349.00. I would now be <b> Long 4 ES</b>. My question is now, what is my average cost? I made 103.50pts (1453.50 - 1350) on the short ES position and I get to keep all the 85.5pts (17.10 x 5) that I sold. So, I made a total of 189pts (85.5+103.50). How account will show that I'm long 4 Dec ES @ 1350, but what is my actual average cost?? Hope this makes sense. Thanks for your help. Daytrader85