Could you explain how someone would Dynamically Hedge Short Strangles such as Don Bright's example with the $40.00 stock. Selling the 35 Put and 45 Call will bring in a low premium and a $5.00+ swing either way isn't very much. I would exit the entire position when one of the strikes got reached. How does Dynamically Hedging work without burning up the premium you collected.
What is an adjustment? Isn't that just entering another position to make up for the unrealized loss on the current one, in this case an Iron Condor. Why not just close the Iron Condor - take the loss or profit - and then start a whole new position. Keep it simple. How does long straddles fit into this thread? Both falling IV and a narrow trading range will benefit the Iron Condor. An IC is much safer than just a short strangle and the hedge and adjustment are built into it.
That's the point of hedging - you don't make as much, but you also don't lose as much when things go against you. bwolinsky was definitely here How is that? Please, enlighten us!
sle ....... the word Dynamic is what is wrong, not the Hedging part. Dynamic is something that constantly changes, so the position is constantly re-balanced. That will eat up the small credit very quickly.
if you have an Iron Condor over 10 lots, and the market moves against you,that doesn't necessarily mean the position is losing $$$$ yet 80% of the time you will need to hedge your position by managing the deltas and you can do that in any number of ways. that is an adjustment but you would know that if you had really done this before which you clearly have not re:"An IC is much safer than just a short strangle and the hedge and adjustment are built into it. [/B][/QUOTE]". that is incorrect and there is no hedge built into SLE is correct you are in danger of being considered a "troll" like bwolinski
Adjustments can also be made to winning positions. If you have a wide condor and you had some price movement (but still a good distance away from the short strike) and the passage of time (decay), the UL may no longer be equidistant from the short strikes. Rather close the entire position, you can roll the more OTM leg in, restoring the original distance to strike on that side, bringing in add'l premium. You can argue that it's a different position but the adjustment was done to maximize return rather than make up losses.
You simply evaluate the bell curve of the position, find the "best" value to sell more puts or calls to adjust deltas... hopefully without adding too much to your gammas. Possibly far out 30's or 50's....The floor traders have dozens of strikes and expiry and have to keep the overall positions within a "reasonable" bell curve, same thing. Don't over-complicate this, seriously this is entry level position adjustment, nothing more, nothing less. Keep it simple. FWIW, Don
Don just curious.....did you actually work with Blair Hull at Hull Trading or did you just happen to be trading by yourself, experimenting with these strategies, during that same time period back then