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Thursday, March 14, 2013

Hedging adjustments to April high probability option portfolio

SPX finally broke above 1555 level after a couple of tests. Market rise reached top band of Bollinger and Dow Jones Average has advanced for 10 consecutive days. A short term pullback is imminent. But my market neutral portfolio had a delta about -39 and price fell into the right slope of the P&L chart as shown below.
Both the SPX and RUT got into their coresponding adjustment zone. Since $VIX was at  low level of 11.60, I think it's very likely that VIX will not be much lower than that level in the next week of so. Thus, I chose calendars as adjustment strategy to hedge against possible upside movements. After multiple calendar adjustments, the portfolio delta was trimmed by 10 points approximately. The Vega changed from -130 to +285, a big bet on VIX not going down further for the next 2 weeks before I close the April inventory.
All the orders were filled quickly as expected, since the calendars are one or two months away. I could have used bullish spreads to reduce delta if I had more bullish outlook. Time will tell.

2 comments:

  1. Hey Charles,

    Question. Do you have any special parameters to decide when to adjust?

    Good work man. Thanks for sharing.
    Keep it up!

    Cheers,
    LT

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    Replies
    1. Hi LT,
      Yes. When SPX price goes to the side slopes of my P&L chart, I start adjusting in general. At those times, the beta-weighted Delta (a contract size dependent value) is usually greater than 36 ~ 38 for my portfolio.
      Thanks for the comment. Enjoyed your professional blog.
      Charles

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