Tag: delta hedging

Credit Spread Adjustments: Delta Hedging with Stock

Credit Spread Adjustments: Delta Hedging with Stock

Trading Strategies
One of the most effective ways to adjust a broken out-of-the-money vertical spread is with stock. So many of us in the retail world—having been introduced to the flexibility and/ or leverage of options—seem hotly opposed to taking a position in an underlying stock, ETF or futures. Many of us would rather torment a simple vertical spread with layer upon layer of complicated adjustments, so that what started out as a hands-off strategy becomes a position that must be constantly tweaked—the original thesis for the trade reduced to a footnote. The Decision to Adjust Often the biggest risk to a credit spread is price: a trader establishes a position and price woefully moves in the complete opposite direction than anticipated. When trading out-of-the-money credit spreads, the general ass