Condor Options

Much as we were looking forward to demonstrating ways we can turn a losing butterfly hedge trade into additional profit, it’s too near to expiration for any risk-management approach other than unwinding our positions. First, we’re reducing our upside delta exposure by taking off  ¼ of the butterfly hedge.

Because there’s no bid under the Dec 57.5 puts, we have to use a ratio spread order, as follows:

Day limit order
Sell 1 JNJ Dec 62.5 put
Buy 2 JNJ Dec 60 puts
for a net credit of $0.21 or better.

Note, again, that we’re only closing ¼ of our butterfly hedge position at this time. To determine the appropriate lot size, multiply the number of contracts in each leg above by ¼ the current number of contracts open at the 57.5 strike. This ratio cuts our negative delta bias by about 65%.