I own multiple legs in a hedged equity position and I'm wondering if there's an alternative to this problem. One of the legs is a long $75 put with a delta of 750. I want to roll it down to the $72-1/2 put with a delta of about 600. In order to maintain delta, I need to buy four $72-1/2 puts for every three $75 puts that I own. That adds a bit of negative delta which is OK because I'm net positive at the moment. The net credit from each -3/+4 combo would be about $100. Since the $75 put is ITM, the B/A spread is wider. In the past, midpoint was no problem and though I was willing to accept a little bit less than the midpoint today, the market maker wasn't giving an inch. If I was looking to do a 1:1 roll down ($75 to $72-1/2) and the call spreads were narrower (or more cooperative), I could buy the $72-1/2 call and sell the $75 call and achieve the same. But given that I want to do a 4/3 ratio on the put roll, the only thing that I can think of is to try to buy the call vertical and buy one $72-1/2 put. The drawback is three new legs along with extra commissions and B/A spreads. Is there any other simpler synthetic position that would achieve the same or is this the only choice? Or is my only realistic choice to bite the bullet and try for less price improvement on the -3/+4 put combo? Thx.
I see no point in rolling a 2 1/2 strike down (for $100) unless the vol is in the teens (or lower). Can you adjust with shares? I doubt the $100 net figure as well.
Thanks for your reply but I suspect that you didn't read my question carefully. As for your premium doubt, if I sell three $75 puts at $5.80 apiece and buy four $72-1/2 puts at $4.10 each, that's a $100 credit. That's a $1.70 credit per vertical. The actual B/A for the vertical was $1.50 x $2.00. Also, I'm asking for an alternate way to achieve this roll, not whether you see any point to doing it.
No, it looks good if the goal is to reduce your D. You're rolling down so no synthetic is going to offer anything on microstructure et al. You could vert the thing, but I assume there is more to the position and you're looking for outrights.