On Monday, September 16, it happened again. A snafu with the Options Price Reporting Authority (OPRA) stopped some options markets on NASDAQ OMC Group, BATS Global Markets and Miami International Holdings. Fellow traders were reporting problems getting options trades to fill at some periods during that day. Although I don't remember this particular snafu happening lately, we have seen and will continue to see occasions when we can't trade at least some options due to problems with our platforms, the exchanges, or even OPRA.

My RUT-related trade didn't need adjustment, but what if it had and if RUT options had been impacted? Since it's often a brokerage platform that sometimes has problems, my usual go-to suggestion is that traders with more than a few thousand in their trading accounts have a second, smaller account at a different brokerage in case theirs goes down. That way, they can perhaps buy a single long put or call as a stop-gap measure to hedge a going-wrong trade. That wouldn't have worked in that situation, of course. What else could have been done?

My Live Trade, Midday on the Sixteenth, OptionNet Explorer Chart:

As you can see, this expiration tent was well-centered, and the trade was not in any trouble, as can also be seen by the Greeks. Position delta was a mild -1.95 for this 10-contract position hedged with 12 call debit spreads. But what if I were about to leave the house and thought that the RUT might be primed for an afternoon climb toward the upside breakeven? That would have been quite a climb, but the point is, what if I'd had a position that might need adjustment and I couldn't rely on an options trade? What if I wanted to increase my position deltas by +10 deltas, for example?

I could use the IWM, the iShares Russell 2000 Index Fund. As I type this article on September 17, the RUT measures 1061.20, and the IWM is bid 105.56 and ask 105.57, so it has a tight bid/ask spread. It was close to 1/10 the RUT's value, with that small deviation.

How many IWM shares would I need to buy to get those +10 extra deltas on the RUT? I could just go to TOS, where I can beta weight a RUT + IWM position.

Because this article wasn't roughed out until after September 16, I couldn't replicate the exact conditions on September 16 and still show the Analyze page. The following chart shows the setup on September 17. Beta weighting the IWM against the RUT at the time this article was roughed out that day, I see that adding 100 IWM shares at 105.57 would increase my position delta by 10.75 points, close to the desired +10 deltas.

Live Position on September 17, Not Beta Weighted:

Note that the delta is -2.65 (center line) for this live position, without the IWM.

Simulation of 100 IWM's Added to Same Position, Beta Weighted against RUT:

Note that the beta-weighted IWM ETF shares + RUT options now has a delta of 8.08, for a difference of 10.75 from the original -2.65 number. In the upper left-hand corner of the last chart, you see that the beta symbol, the symbol against which the combined position is beta-weighted, is the RUT. Don't put the IWM in this slot, or you'll give yourself a heart attack when you look down and see the deltas higher or lower by a multiple of 10 than you expected to see them!

Many platforms will allow you to beta weight a position like this. In the past, I was able to beta weight my total position when I used OptionsXpress, for example. However, I am not able to do that (yet) on OptionNet Explorer, so I used TOS's platform for this example. If you are having trouble trading options and need to adjust, wanting to use this method, call your brokerage's help desk and ask about this capability as well as for their opinion.

One of the benefits of this technique is that these SPY and IWM shares usually have tight bid/ask spreads and high liquidity. It's easy to get in and out of the trades. Because these are shares of the ETF's, there's no option decay.

However, they're not without risk, of course, and one of those risks shows up immediately: increased commissions in some cases, depending on your commission structure for options versus stocks. Determining other risks requires analyzing how well one security's movements correlate to another's (beta). A thorough study of that requires an additional study of regression analysis. It also involves a discussion on how that correlation can change and the additional risks one might be taking on unless the beta-weighting vehicle is very well correlated to the underlying, as it is in the case of the SPX/SPY and RUT/IWM pairings. For example, a portfolio of GE, IBM, SOHU, and AAPL stocks may not be well-hedged by a SPY position, no matter that you supposedly had the correct beta-weighting when the position was initiated two months previously.

That's not what we're discussing, however, and there's no need to perform complicated regression analysis. We're talking about an emergency measure when you might not be able to trade options and need to adjust your options positions, as happened for a time for some fellow traders on September 16.

By now, however, some of you will have already thought of a complication to this whole procedure. What if the markets had been headed sharply lower that day? If options markets were closed, then I can't buy a put, either, and buying an IWM or SPY ETF share is certainly not going to give me the needed negative deltas. First, it's possible that not all options markets are closed. September 16 presented a problem with OPRA, but other times, it might be a single exchange with a problem. Once years ago when the PHLX suddenly cut off quotes for the SOX to many brokerages without warning, traders hedged their SOX-related trades with SMH options.

However, if some measure like that is not available, the only choice if you want to stick with the SPX/SPY and RUT/IWM pairing or a similar one is to short one of those ETF's, and that's honestly not something that I would likely do. It requires permission ahead of time, which I have but just don't use. No short stock for me. It's not a tactic that I would advise employing if you're not used to shorting, either.

Some readers will be shouting "futures" at me from cyberspace. Futures--either buying them or shorting them--can sometimes also be used to hedge against a move in an options-related trade when you can't trade options. However, once again this requires prior approval, and it's not a tactic I would suggest if you're not already used to trading futures. A knowledge of leverage, the way margin requirements might change, and the correlation with the underlying's price movement are necessary and not something to learn on the fly with futures. You can lose far more money than you thought with futures.

Another choice to explore is buying an inverse ETF. Once again, that tactic needs to be explored before the need arises. If you think that's something you would prefer in a case in which markets are barreling lower and options trades are not available, be sure to simulate trades ahead of time and read about them. Some such inverse ETF's don't track the reference index's movements as much as traders expect them to do. I don't use them and so have only that caution to offer.

Another caution concerns the tax treatment of an ETF purchase rather than a purchase of options on a broad-based index such as the SPX and RUT. Those options have been receiving preferential tax treatments because they're what is termed 1256 contracts. Profits have been 60 percent long term and 40 percent short-term, no matter how short a time the options are held before selling them (or bought after selling them). Those rules are under attack as new revenues are sought, so they may not exist much longer, but be aware that the ETF you've chosen may not receive the same benefit. Furthermore, some have dividends, which could impact tax treatment.

These are probably not all the choices, but the point is to show that it's a good idea to think about what you would do under such a situation, test out theories. Ask the trading desk at your brokerage for permissions before they're needed, if your choice will require such permissions.

Fortunately, I didn't have to adjust September 16, and I hope none of you were caught needing but unable to make an adjustment, either. However, I thought this discussion might help you think about what you might do in the future.