What would move you to hedge gammas with spot positions since your FLY is now a perfectly hedged position and large price swings in any direction no longer adversely affect you?
Portfolio deltas reaching some arbitrary level. For example, we see 2% lower in index markets and 80% of tickers are trading +40d on average. I'd run a correlaton matrix and derive a neutral index hedge. I would discount the index hedge by the convergence gains to expiration; which would simply consist of solving for a discount based upon the current extrinsic val on all the flies. Thanks Chi.
This reminds me of when I was in high school reading Shakespeare, I know it is in English but still got lost LOL I guess the question was more if the markets drop 2% and you are in rolled into FLY's what would be the reason to hedge since you no longer had the large exposure. Would you be trying to now trade the direction? Or is it that if you rolled into all the FLY's with a NET CREDIT as opposed to CME's net debit, then you would simply be trying to prevent losing that net credit by the stocks swinging outside the wing strikes... I appreciate your patience with the questions, I just sometimes have to turn Greek to english lol.
I'd feel the need to make an attempt to maximize current mark-to-market gains, that's all. Yes, there would be virtually zero debit risk, but I assume there would be some return-volatility based-upon my marked gains. A hedge will limit gains, but smooth the equity curve.
I do not remember this answer so sorry for repeating it. When you roll into the FLY, is your goal to hold until expiration or you look for a nice marked to market gain and take off the whole position at that time.
Hold all flies to expiration, or very near. When gammas go vertical I will likely offset entire positions. The index hedge is to replace some near-expiration offsets.
Riskarb: I decided to wade into your pool on this strategy. After today's huge drop in price on GOOG its IV spked up to some highs. I sold 5 FEB GOOG $400 Straddles @ $53.60 with an IV of 60%! Looking for the IV to pull back some for the week and pricing the 380/420 straddle to get in at $33.60 or lower sometime in the middle of next week. Earnings are in two weeks so IV should not collapse but should pull back after the huge spike. I also expect it to hover somewhat so a few days of theta (currently at +.95 for the straddle) will help along with a 5 - 10 point pull back in IV. I will update the position so we can play together. Phil