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.


  1. Hey Charles,

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

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


    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.