Great question.
Ideally, I want to sell call spreads after a move higher. SPX moved 40 points to the downside and I took off original bear calls at 65% of max profit. I didnt want to end up with long delta because SPX felt weak going into the weekend. So I decided to sell call spreads 1/2 size and balance NET delta near flat. The reason why I dont like the idea of going full size when I roll down my bear calls is because of the upside risk. The market can turn on the next headline and squeeze to previous swing highs as we have seen this before. Let’s look at this position and where the P/L curve is over the next few weeks:
This is a graph that compares both scenarios, 1/2 size vs full size at T+12. On the downside (C), both P/Ls look similar. But on the upside, A is the 1/2 size bear calls position and B is the full size position. IF the market turns and SPX rallies to test 2100, full size position will be at about break-even while A will still be profitable. I will most likely have to roll this position higher IF SPX runs to 2140, but as we can see the A curve is alot smoother while B curve is becoming very steep. Even if I roll 2150/2160 to 2170/2180, I will receive enough credit for the new spread to cover the loss from 1/2 size spread of 2150/2160 and roll this spread out without having to commit extra capital.
Advantage of going 1/2 size on the call side here is keeping the P/L curve smooth and managing losses on the upside before having to roll up the spread IF the market turns and starts to squeeze higher.