Adjustment signals and comparing the alternatives

Signals are facts, not instructions

A position rarely announces when it needs attention, but a few facts tend to come before the decision. The Paper trading card shows each of them when it is true. None of them says what to do: each is a reason to look at the alternatives.

Signal	What it means	When BOSS shows it
Tested leg	A sold option whose delta has grown because the market moved toward its strike. A delta of 0.35 roughly means the option is now about one-in-three likely to finish in the money.	Delta above 0.35 in absolute value
Margin use	Maintenance margin is a large share of equity: a further move against the position could reach liquidation.	Above 70% of equity
Expiry with high gamma	Little time left and a delta that changes fast: the same move hurts more now than it did a month ago (see gamma).	Under 7 days, and a 1% move shifts the delta by 0.05 or more per unit
Profit captured	Most of what the position can make is already made; what is left pays little for the risk still carried.	More than half of the maximum profit at expiry

The alternatives, side by side

Whatever the signal, the choices are the same four: keep the position, close it, roll it, or adjust it. Comparing them fairly takes three rules:

• Price everything at execution. A roll or an adjustment is two trades: closing legs crosses the spread and pays fees, and so does opening new ones (see bid, ask, slippage and fees). A credit at mid prices can turn into a debit once both sides cross the book.
• Judge the whole position. Add what has been realized so far to what the new position can still make or lose. A roll that brings in a credit but moves the breakeven closer has not repaired anything.
• Keep the references in view. Keeping the position costs nothing to choose, and closing it turns everything into a known result. An alternative has to beat both on something that matters to you.

When one alternative is cheaper, has a smaller worst case and a higher probability of profit than another, the other one is dominated: nothing argues for it. What remains are the real choices, where every gain on one measure costs something on another, and BOSS marks them as efficient. Which one fits depends on what you value, so BOSS sorts by the criterion you pick and never by a score of its own.

A worked example: a tested put

You sold a short strangle with BTC at $100,000, the $110,000 call and the $90,000 put, for a net credit of $3,995 after fees: the example in managing positions. Ten days later BTC is at $92,000 with 20 days left, and the put's delta is about −0.40: the leg is tested. Take these quotes as an illustration: $2,950 bid / $3,000 ask for the $90,000 put, $380 / $420 for the call, $1,250 / $1,300 for an $85,000 put and $570 / $600 for an $80,000 put, with fees of $30 a leg.

Alternative	Trade now	What the position can still do
Keep	Nothing	Best case $3,995; downside breakeven at $86,005 ($90,000 − $3,995)
Close	Buy back both legs: $3,000 + $420 + $60 of fees = $3,480	Nothing more: a final result of $3,995 − $3,480 = +$515
Roll the put down to $85,000	Buy back the $90,000 put for $3,030 and sell the $85,000 put for $1,220: a debit of $1,810	Best case $3,995 − $1,810 = $2,185; downside breakeven at $85,000 − $2,185 = $82,815
Buy an $80,000 wing	Buy the $80,000 put for $630	Best case $3,365; below $80,000 the loss stops at $10,000 − $3,365 = $6,635

None of them wins on everything. The roll gives the price $3,190 more room to fall before the position loses money, and pays for it with $1,810 of the remaining profit. The wing keeps more of the profit and caps the loss below $80,000, but moves the breakeven up by its $630, to $86,635. Closing locks in a small gain and frees the margin. Keeping costs nothing and keeps all the risk. The choice is between these trade-offs, not between a right and a wrong answer.

Hedging the delta instead

A different kind of adjustment leaves the options alone and trades the underlying. In the example the position's delta is about +0.32: the sold put's +0.40 less the sold call's 0.08. Selling 0.32 BTC of the perpetual takes it to zero. That changes only the delta: the gamma, vega and theta stay, so the hedge needs redoing as the price moves. It has its own costs: the trading fee (0.035% of $29,440 on Deribit, about $10), and the funding a perpetual pays or receives every period, or the basis a dated future gives up as it converges to the index. And it doesn't expire with the options: once they settle, the hedge is a naked directional position until it is closed.