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February 7th, 2011 at 12:39 pm
neverworkagain
The 840 short call has a delta of .12, just monitor it closely and if it gets to a .15 delta, then I will go and buy insurance at the March 830 call. You have 25 contracts so you probably need about 2 of them. Then if the spreads hits point .20+, roll to the next .10 delta depending on the number of days to expiration and you need to 1.5X, to pay for the roll and still make it profitable. So for 25 you probably need about 37 contracts. Mean while your March 830, if it gets to the point you have to roll will have made you some decent money to help defray some of your loses.
If the RUT backs off the March 830 will not decay as fast and you can still close the entire spread at a limited profit. But no matter what you do, don’t let the 840 short call be breached.