Occasionally over the years, I've written for the educational market. About a decade or two ago, brainstorming was a favorite activity in education.

I think it should be in options trading, too.

For those not familiar with the concept behind brainstorming, it's a problem-solving technique often used in groups. Once guidelines for an accepting atmosphere are set, members of the group throw out ideas without fear of censure, no matter how inane those ideas might appear to be on first hearing. Each idea is noted. One person's inane suggestion may prompt the solution that proves to be the best one.

The concept can be adopted by an individual thinking about trading adjustments, too. Again, a main proponent must be a free-flowing atmosphere in which there is no fear of censure. Ever catch yourself saying out loud, "What a stupid idea!" about something you were thinking? That's not the way you want to think about your own ideas when you're brainstorming trade ideas. That's important. If you don't feel free to throw out stupid ideas, you may miss the one crazy idea that sparks a needed solution. The point is to shake yourself or the group out of sterile, typical going-round-in-circles patterns of thinking about a problem.

For example, on January 14, I established a double RUT FEB/MAR calendar selling February 820 calls and 780 puts, and buying MAR 820 calls and 780 puts. When originally established, my expiration breakevens were at 767.27 and 832.63, although that would change, of course, as the trade went along and volatilities changed. I planned to adjust when the RUT's price was halfway between the sold strikes and the expiration breakevens. On the downside, that would have been at about 773.64, although of course that would change a bit as time progressed and those volatilities changed.

By Friday, January 21, the RUT dropped to a low of 773.12. It was in my adjustment zone. I knew what I planned to do, but what if I hadn't? If I'd been brainstorming, what ideas might I have thrown out for consideration?

The first brainstorming idea might have been to do nothing. The trade was showing a profit of about 3.42 percent, and the delta was only 8.28. Theta would have been negative, however, so the trade was going to be hurt by a weekend's time-related decay.

Take off the trade. I'd been in the trade only 7 days and had a profit. The RUT can move big when it moves, and it had already moved more than a standard deviation for the time I'd been in the trade. If something happened over the weekend and indices gapped lower, the RUT would likely fall hard. If it started falling hard, even a positive-vega trade such as a calendar wasn't going to be able to keep up with the price-related changes without losses.

Add a long put position to reduce the deltas. This would require more margin and would make the theta even more negative, but this tactic would allow me time and safety from which to watch the RUT and see if it reversed. A big pop in volatility would inflate that extra put, but time-related decay would be a problem soon, and the trade would be even more heavily positive vega than it had been. Any decrease in the volatilities across the board would lower the profit potential.

Add another calendar a little beyond the then current RUT price, and make the trade a triple calendar. This would widen the expiration breakevens and give the RUT a wide playing field. If the RUT was going to become more volatile, that wider playing field would allow me to watch without having to adjust so often, incurring more commission costs. My theta would be higher, a good thing, but margin would be, too, as would the vega. Any across-the-board decrease in volatilities would sink the profit-loss line, both the "today" one and the expiration one.

Take off the 820 calendar and wait until the next week to see if I should add another. This would reduce the risk in the trade over that weekend by about a third. Delta would be only -2.83, so the trade wouldn't be immediately impacted by a small change in price. The expiration breakevens would be 757.24 and 804.80, giving the trade more room to the downside but severely dropping the upside breakeven. Still, if I still had enough time in the trade, I would be able to add back an upside calendar or butterfly if the RUT showed that its next direction was to the upside. Taking off the upper calendar would drop the vega to only 59.58, so the trade wasn't going to be impacted as much by a drop in volatility, and it wasn't going to benefit as much if volatilities bumped higher, either. Still, the trade would be lean and flexible, ready to be adjusted in either direction, once the RUT had shown its true colors the next week. At the time, there were still 28 days to expiration, so plenty of time to wait and add a new calendar where needed. Theta remained negative with this choice, however.

Take off the 820 calendar and add one just below the then-current RUT price. This would keep the margin and vega relatively near the original. It would prop up the theta again. But it would lock in a loss on the 820 calendar and would lower the upside breakeven, which might be troublesome if the RUT took off to the upside again.

Add a butterfly just beyond the then-current RUT position. It would add to the margin, but would prop up the theta and reduce the positive vega of the overall position. It would widen the expiration breakevens, giving the RUT that wider playing field. This one might be good if I thought the RUT was going to pull back slowly and then steady for at several days in the same place under the butterfly's tent-shaped expiration profit/loss chart, volatilities dropping again. However, adding a butterfly is a tactic generally employed at an upside adjustment point. When an underlying is falling, volatilities are usually climbing, so I wouldn't want to employ this one unless I was pretty sure the RUT was due to consolidate for a week or so. Even then, with the RVX as low as it was, I wasn't sure that volatilities would stay low while the RUT was consolidating.

Turn the lower put calendar into a diagonal by using a vertical spread to roll the 780 put down to the 775 strike, which had opened up by then. This would push out the downside breakeven by a few points, to about 761. It would increase the margin, but only by about $230.00. This tactic would reduce the positive deltas by about half but it wouldn't really increase the theta all that much and wouldn't really decrease the vega that much, either.

Diagonalize the lower put calendar by rolling the MAR put up to the 790 strike. This didn't change the downside breakeven as much, bumping it down only to 764.62. Delta dropped to 2.66, making the trade fairly immune to a price-related movement as long as volatilitiy stayed steady. The vega wasn't reduced much, so any change in volatility was going to be more important than the change in price.

Condorize the trade by rolling both March options into the FEB cycle. Nope, that just makes no sense at all.

Take off the whole trade and wait until the following week to reposition. Hmm. With the position having a little profit already and being a negative theta one, that's a possibility, particularly if I had looked at the charts and been convinced that the markets were primed to cascade lower. I wasn't convinced of that.

From all this brainstorming, it might become clear to you, as it did to me, that with the vega as large as it was, I had to first have a view of what would happen to volatilities before I decided on the right adjustment for me. Guarding against too big a price action was important, but the volatility movement might be even more so. Moreover, I wanted to have an idea of how volatilities would change in both expiration periods. Sometimes when we see a brief pullback, even if it's sharp, the volatilities in the front-month options will plump up, but the volatilities in the back-month ones won't. The market makers and market participants don't believe that the move will be sustained. The back-month volatilities may not start plumping up until the move has been bigger or gone on longer in time. A plumping up of vols in the front-month puts but not the back-month ones would actually hurt the position, no matter what the vega says. In fact, the profit that I had garnered so far had likely been due to a 4.7 and 4.9 percent drop in the volatilities of the February options in that trade since I had initiated it.

Experienced calendar traders might be able to brainstorm a few other ideas. The point of this is not to tell you what you should do under these conditions but just to run through the kind of exercise that can prompt new solutions. One of those brainstorming ideas turned out to be just dumb--to condorize the calendars--while others merited some consideration, but if I cut off all ideas that I think might be dumb, I might not discover the ultimate good ideas that will prove workable. We have to start this exercise without censoring ourselves, and without fear, either. That's why it's sometimes best to brainstorm before the market opens, when our minds are clearer. Decide on the choice that works best with your risk tolerance, beliefs about price action and understanding of what might happen to volatilities, too.

In the end, I kept staring at the RVX charts as well as the charts of the volatility skew in RUT's options chains. I've known times when volatilities just keep sinking and sinking and sinking, when it seems impossible that they can keep sinking any lower. However, when I thought about probabilities, I kept coming back to the fact that, as low as the volatilities were, it might be probable that they would increase at some point. I knew that the volatilities would become less and less important in those February options as expiration approached, because they'll go to zero in expiring options, but it wasn't time for expiration yet. I had to have a volatility view.

I elected to take off the top calendar and roll into a 760 one. That turned out to be the wrong decision, of course, requiring another adjustment later in the trade. At each point, I brainstormed then decided what risk (margin) I was willing to assume, what I thought would happen with price and volatility and other such matters. I modeled each adjustment on a profit-loss chart, and I set up simulated trades on Think-or-Swim's platform, ready to go with the preferred choice if the price or volatility point was reached. I kept coming back to those low vols, but I kept being wrong. Finally, the big upside move on the Friday before expiration week outran my ability to make a workable next adjustment. I'd been keeping the price under the profitable part of the expiration profit/loss chart with each adjustment, but the next adjustment was going to sink that profit/loss chart so low that only the tip-top of its peak was showing above the zero line, with much narrowed expiration breakevens. I elected to get out with a $271 loss, a decision that I was relieved to have made the next week. At 8 percent, that was much smaller than my planned maximum loss of 25 percent, which certainly would have been hit before the RUT finished that week.

Brainstorming didn't stop me from taking a loss this time. In the long run, however, it helped me focus on the important considerations in that trade. Price action always worries us options traders, but in some trades, it may be something else that's just as or more important. Brainstorming helped me clarify my view of the markets. Did I think the RUT was ready to barrel lower before February's expiration? Did I think that, even if it didn't, volatilities were so low that they might jump at any time?

If you're not accustomed to making adjustments in your options trades or to the whole process of brainstorming, I might recommend a book I've mentioned previously: Jeff Augen's The Option Trader's Workbook. Augen's books are all dense and hard to read, and this one is no different. However, its workbook style accustoms traders to thinking through the many choices that might be employed when making adjustments. It's not a systematic discussion of adjustments, but rather a series of prompts relating to theoretical trades that are going right or wrong. Don't expect a beach-read type of book, but it's helpful if you're the type of person who has difficulty starting the whole brainstorming process.