Tony and Katie "massage" their delta in FCX and DIA. In FCX, the duo shorts 4 puts (rather than 3) to underhedge their delta. The same goes for DIA, where they roll up the short Puts once more to collect more credit and lessen their directional risk.

Tony: Katie, we're back!
Katie: Happy Friday. Back to cool.
Tony: Happy Friday. Back to cool, yes. Fridays are cool, aren't they?
Katie: They are pretty good most of the time.
Tony: Fridays are pretty good. Yeah, no complaints about Fridays. Any complaints about the market today?
Katie: The account's not looking so hot, but …
Tony: Not every day can be a winner.
Katie: That's what I'm saying.
Tony: You do remember 2014, don't you?
Katie: Oh yeah.
Tony: We limped in to the close there at the end of the year. We had a very nice 10 months or so, and then the last 2 months took it on the chin pretty good, in oil, which is kind of rearing its ugly head here a little bit and kind of on the other side a little bit too. We played oil to the bullish side but we stayed a lot more neutral on it, meaning skewed strangles or iron condors that were equal distance, just playing the high volatility. Now, we've had products move too far. Let's take a look at your account, and we'll see what we can do about that. I want to beta weight your account too when we get a chance. You're down about $150 today. I think we were unchanged yesterday. We were up around $100 throughout the day, and then into the rally we lost about $100 to make us unchanged for the day. You're down $150 over the last 2 days. The account was around $1,600. Now it's around $1,450.
I just scan with my eyes the P&L and I also look at the delta of course too. The delta that pops up at me there is Microsoft and FCX, FCX being an oil commodity related product, and then Citigroup. Delta-wise those are the ones that pop up to me. On the other side you've got UNG, positive Delta, USO, some positive delta. Then I look at the P&L for the day on each individual one. No surprise, FCX would have the biggest position move. It's the biggest delta that you have up there. Let's beta weight the overall position and then we're going to take a look at FCX. We rolled Citigroup about 2 days ago …
Katie: Yesterday.
Tony: … meaning we rolled up the put side. If you could just open up for a second before you beta weight that would be great. We rolled up the put side to get a little bit closer in Citigroup. With Citigroup up 37 cents I guess it was a good roll. We still wanted the stock to go lower. This is one where we played to the bullish side, sold some premium. Stock's gone too far. Still have enough time, 35 days, to either keep rolling up the untested side would be the put. Hopefully we get a chance to manage it and close it. Close up Citigroup. I'm not looking to move Citigroup because we did that one yesterday.
Diamonds is one that I'm looking to move and I'm also looking to move FCX. We move the Diamond one, the Dimaond one is much wider. I'm going to tell you why I prefer DIA over IWM and SPY, because those are the 3 ETFs that you have. You don't have anything in the Qs. Our Q position is represented by Netflix. What I'm trying to do right now is just go over my whole thought process of the portfolio you have. We don't have anything in the Qs because we have Netflix. It's a big $5 wide spread, relatively big for your account even though it's a vertical.
Katie: Right.
Tony: Diamonds we rolled up a couple days ago, maybe a week or so ago. We might look to roll that up. Open up the Diamonds for a minute. Just because we're still so wide in there. We'll look to possibly roll that one up to get us some long deltas if we need it. FCX would be another one. Let's beta weight the whole position to SPY. I guess you could beta weight it to Diamonds if you really wanted to. We could do that if you want to. SPY has 187. What's Diamonds have? Just since we might be in the Diamonds. Diamonds have 226. Short deltas. You're short about 200 shares of SPY or the Diamonds no matter how you slice it up. In FCX when you compare it to the Diamonds, your position is basically neutral. When you compare it to SPY. I'm sure it's going to be the same, and it is the same, basically the same. Okay?
Katie: Okay.
Tony: Let's see what we can do, and then we'll see what our overall position looks like after we've made these adjustments to see how much it changes your overall deltas, okay?
Katie: Yep.
Tony: Let's go to … wow we really ran out of time already. Let's go to the analyze tab because I had an emailer ask me to use the analyze tab on Toss and we haven't used it in a little while. Let's go to FCX. I'm sorry, yeah FCX. Let's open up the … You have the position right there. We own 100 shares of stock, short 3 of the 18 puts, short 4 of the 19 calls. Our buying power reduction is around $600. For the sake of time, open up the March positions there. Change the … Oh you have it ready. Perfect. You can see, just visually, what we're short. We're short the in the money call. We're short the out of the money put. We want to roll up those puts. We've already, I think rolled them … We've already sold some puts once before when the stock was down around $19. Now the stock's up around $20.
What I want to do, and I guess for the sake of time we'll do this, is sell 4 19 puts and buy 3 of the 18 puts. Just right click on it, on the 19 puts. Go down to analyze sell. Go to vertical. Change that to 3 contracts. Stop. 3 contracts takes our delta, unclick it for a moment, from 100 … Unclick the one vertical on the left. Takes us from 100 to 70. Now I want to sell one more 19 put which is going to give us about another 30 deltas. Click it back for a moment. Right, make it custom. Sell 1 more of the 19 puts. That's going to take my delta from 100 to 38, about 60%. We always look for around 50% where it's definitely underhedging here. You're going to pick up more short delta on the 19 call because it's in the money. That's the spread that I'd like to do. We take our buying power from 600 to about 1,000. We're using more buying power but we have plenty. We have over half of our position sitting in cash. All right? Let's right click on that. Send the trade or look at the trade or whatever. Sure. It takes about $300 worth of buying power. Go in at mid price. Looks like the markets are penny wide. It's not going to matter for price discovery. If we get a little bit of downtick, we'll get filled on that. You're selling an extra put. You need a little bit of a downtick.
Let's go into DIA for a moment. Let's just do it from the trade page just for the sake of time. In the Diamonds we have a wide strangle on. You're going to have to open up a couple more strikes. Change the return on capital to delta just so that people can see the deltas. Perfect. Now remember, why are we going to use the Diamonds? Let me just do this. Go into a chart for a quick second. Type in IWM. I should have just stayed with the Diamonds since you had it. IWM is going to have an IV rank of around 20, 21. Let's go to SPY. You have positions in here already which we can make less bearish. SPY is around 32, 33. Let's go into the Diamonds. It's going to be 41 or 42 which we just saw a moment ago. It has the highest IV rank relative to itself. It has the most premium relative to itself. It might not have the highest monthly implied volatility, but it has the highest premium to itself. We're just playing volatility contraction. If I'm looking to adjust something, SPY, IWM, and Diamonds, I don't know which one is going to go down more than the other one. From a volatility standpoint, if I'm being intelligent about this, I'm going to make the logical assumption and go into Diamonds.
Katie: Okay.
Tony: Let's go back to the trade page and DIA. We're going to roll up that put that has around a 9 or 10 delta, that's the 165, to what strike? You tell me. I've done all the talking for the last 14 minutes.
Katie: The 175 or 176? Do you want to go closer? We usually go … That would give us 20 more long delta. We have what right now?
Tony: You have about 28 long deltas, excuse me 28 short deltas in here. Your call gives you 38 short deltas. Put a little arrow next to that. Your put gives you around 10. Let's just say you have 28 short deltas. If you rolled up to what you're suggesting, the 175, for arguments … Let's just do the 174. The 174 will give you 25 deltas, minus the 10 that you'd be buying back, so you'd get long about 15 deltas.
Katie: Okay so that's too much.
Tony: I agree with you. I think that's too much especially with the move that we've had thinking that the market might be a little frothy. I don't know. I'm thinking that maybe we cut that in half and go to the 170.
Katie: Okay.
Tony: Does that make sense?
Katie: 15? 15 delta?
Tony: Yeah. Since you wanted to go all the way up to 175, why don't we do the 172 and just take 10 deltas. We'll take a third of it off.
Katie: Perfect.
Tony: Okay?
Katie: Perfect.
Tony: There's no wrong answer here. If we continue rallying, going to the 172 and being more proactive is the play. If we go down, the rest of your portfolio is going to benefit. I like it. It's the same reason why we were a little bit more aggressive in FCX selling another put, putting on more … is the same reason why we really should go up to 172 because you have a short portfolio elsewhere.
Katie: Okay.
Tony: Makes sense?
Katie: Yeah.
Tony: All right good. 154 is the mid price. Change that from a sell to a buy on the left-hand side there. This is just a little trick I do on Toss. It shows a mid price of 155. If I'm trying to buy it. Go back to sell. It shows a mid price of 154. Let's go in at 155 and see what happens. We can also move it down, but you never know. We get a little bit of a downtick in the Diamonds, although we just got a little uptick. We got filled? Oh, beautiful. At 55? We saved ourselves a penny.
Katie: There you go.
Tony: Now I wish we went in at 56. Rerun of Liz and Jenny?
Katie: Yeah, best of Liz and Jenny.
Tony: Best of Liz and Jenny.
Katie: Yeah. Slim's view of next week.
Tony: Slim's view of next week. Hopefully he brings Slim's balls with him and he can really get a good feel for what's going on.
Katie: Oh my gosh. Okay.
Tony: Did you see [inaudible 00:10:35] throw a baseball on the break just now?
Katie: The tasty2go?
Tony: The tasty2go.
Katie: Oh I've seen it.
Tony: You can throw a baseball better than him, can't you?
Katie: I played softball for years. Of course I can.
Tony: My girl. That's what I'm talking about. [inaudible 00:10:45]
Katie: Have a good weekend. Peace.
Tony: Peace.