Hedges should lose money

Your hedges should lose money.

That's the whole point.

If your put spreads bleed in a rally, good. Your longs are working. In a 5% rip, you're making far more on the upside than you're losing on the puts.

Convex hedges manage themselves. As the market rallies, put spreads decay toward zero. Your hedge ratio drops from 20% to 15, then 10, then nothing.

That IS the exit plan. 

You don't need to "manage" hedges in a rally. The convexity does the thinking for you.

Where it gets dangerous is when hedges lose their convexity. That's when you roll. Not when they're bleeding, but when they stop being asymmetric.

I keep a 20% floor on my hedge ratio. Below that, I'm adding. But I don't panic when they decay in an up move.

Traders who rip hedges off at the first sign of green are the same ones completely naked when the next leg down hits.

Every time.

A hedge's job: lose money slowly when you don't need it. Make money violently when you do.

How low do you let your hedge ratio go?