SP:SPX   S&P 500 Index
Pictured here is one of my broken index setups. As price has moved up, short delta in the setup has increased, and I have defended the call side somewhat by rolling the put side toward current price, which increases the long delta in the setup. At some point however, rolling the short put side toward current price becomes unproductive because there is too little time left until expiry and/or you can't get enough out of the roll to make it worthwhile. The setup is still net short delta -- what to do?

One option is to "delta hedge" by adding a totally separate setup in a different expiration to take on the job of defending the call wing from further upside. In this case, I could consider adding long delta (since my net delta is short) using a short put vertical (which is a delta positive setup) in an expiry some time in August.

However, I want to be careful doing too much of this. First, adding a separate setup increases risk. For example, if price whipsaws back to the downside, I could very well find myself having to defend two put sides, whereas now I would only have to potentially defend the one pictured here. Secondly, should we get a down move, the long delta portion of the setup would increase incrementally, since I would now have on one more long delta unit than I have short delta units, and I could find myself scrambling to balance overly long delta in the setup, essentially chasing my tail in an anally retentive effort to keep the setup delta neutral.

For these reasons, I do any delta hedging I feel I have to do small and sparingly and only in circumstances where I can't comfortably or profitably roll a defensive side. Additionally, I set up a delta hedge as though it were an "original setup"; I don't try to move it in closer to current price to get more credit out of it to make up for the losses experienced by the side I'm defending, since again I want to lessen the possibility that my delta hedge will become an entirely separate headache if price decides to whipsaw back into it. Thirdly, I generally take it off as soon as it's served its purpose and I can do so profitably (e.g., the side I'm defending is reaching expiry, and I'm on the verge of rolling it anyways). In some circumstances, "profitably" for a delta hedge can be basically anything more than scratch ... .
Comment: In the circumstance where (a) I've added a delta hedge; and (b) delta skews back toward the hedge, I go ahead and balance out units at that point as long as it makes sense. To use the example above: I have the pictured SPX iron condor on. I choose to delta hedge by selling a 85% probability out-of-the-money short put vert in the Aug 19th expiry, adding long delta. Price whips to the downside, resulting in the setup become net delta long. I proceed to add an Aug 19th short call vert (short delta) to match the short put delta hedge I've put on, completing an Aug 19th iron condor.
Comment: But you can see why I call that "chasing your tail." You've now got two iron condors on, when you really only wanted one. You could do that infinitum trying to keep your setups delta neutral all the time.
Yeah the strength of Brexit recovery has killed many neutral strategies. I went into Brexit with SPY Jun24/Jul 209 calendar. Jun24 leg expired worthless and I welcomed quick run up. I sold Jul 212 first, the locked into a butterfly by selling 212/215 credit spread. While my Bfly was for house money I am certainly unhappy about my 209 calls. The SPY closed ~ 216 blowing past my butterfly profit range.
I get periodically "raped" with these, but generally "massage" them back to scratch with rolling and such. Definitely "unfun" when it happens ... .
baerrus NaughtyPines
ohh the "pleasures" of short premium strategies :)
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