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You add as much as it takes to get the delta as close to 0 as you can, within reason (and this only occurs when you open the trade). Since I've only been trading this system since January, I'm still only trading one lot. So I've only ever had to add one IWM call. Of course, the deeper in-the-money the call is, this will also have an effect on how much it moves your delta towards 0. But of course, deeper in the money calls cost more. It's all a balancing act. I could buy more of a lesser in-the-money IWM call, which is cheaper in price, but then you're paying more in commission.
I would imagine, as you increase your lot size of these butterflies, you can switch to straight out RUT calls...
Just as a hypothetical example (I'm not sure if the ratio of number of calls to number of butterflies is accurate because I'm not in front of my trading platform now to verify), if you were trading 5 lot butterflies, instead of buying 5 IWM calls, you might only have to buy 1 RUT call, saving you on commissions. Or maybe you only have to buy 3 IWM calls if you buy deeper in-the-money calls. Like I said, it's a balancing act where you can go in a couple of different directions.
And if buying stock is cheaper, you could go that route too, and buy shares of IWM to get to delta neutral. I like to keep things simple, so I've only looked to trade all options when doing the M3.
Last edited by PaceAdvantage; 09-24-2014 at 10:09 AM.
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