IF/WHEN 2155’s delta reaches 20, I will look to use OTM options to reduce this position’s NET delta by 50% or so. Let’s say we reached that point as of right now. This is what current P/L graph looks like:
This position’s NET delta is about -20. I’d go look for a 10 delta call which would reduce my NET delta to -10. Buying 1 JUN2 2165 call for about 3.50 will lift the P/L curve on the upside so that if SPX continues higher I will have a chance to roll up my JUN1 Bear Call spread and profits from that JUN2 2165 call will help pay for the roll up. This is what P/L curve looks like after the adjustment:
As you can see, adjusted P/L curve is less steep on the upside because gains from JUN2 call will offset some of the losses for the 2155/2165 BCs. Also, NET delta of new position goes from -19 to -9.
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