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Originally Posted by PaceAdvantage
You have a point. I guess since I've never had to deal with price heading towards my lower strike since I started trading this around January/February, I was incorrectly interpreting the directions to mean adjust once price went 20 points below the lower strike.
But, he also seemed to be very flexible in that regard...and since my position is still profitable and my delta hasn't hit 10 yet, I wasn't in any rush to adjust. But thank you for pointing out an error in my interpretation.
If the RUT opens 30 points down on monday or more, I bet i wish I had rolled earlier...lol Because if that happens, the position will be down around $300. Still not down enough to be stopped out at my $500 stop loss price, but sucky nonetheless.
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If you look at your graph, your T+0 line is looks good to the upside. However, to protect against a move to the downside rolling down some time before that happens will have the effect of flattening out your T+0 line, and giving you more protection. Rolling, adding verticals, adding calls, selling puts etc. reduces profit, but that's why you allocate $5000 for the trade to begin with.
My trade has a maximum profit potential of about $3600 (at expiration) if it closes at my short strike (1060) and I don't do any hedging. But the fact that it probably won't close where you want it to, and you don't always wait until expiration to close, and that you might also do some hedging--reduces your profit.
And, what I'm beginning to realize, is that efficient (but very complicated) hedging will greatly improve your profits.
Delta is important but it's not the only consideration. Keeping your T+0 line flat is also important.
At this point in time that's my take on things anyway.
