It may be necessary to adjust RUT December Iron Butterfly.
The combination of dovish comments from European Central Bank President Mario Draghi and a rate cut from Chinaâ€™s central bank are setting the stage for a sharp move up across the indices this morning. While still early yet, it is very likely that the upside adjustment trigger will be reached on the December Iron Butterfly entered yesterday.
As of this writing, RUT futures are up over 12 points. As per the guidelines, however, it is recommended to wait at least the first hour before adjusting; it is a trader's choice as to the exact time of the adjustment. In the case of a gap, quite often there is some filling in after the initial opening move. It is recommended to adjust before the end of the day today if RUT remains at or above 1180.
A recap of the original position and recommended adjustment is below:
SOLD RUT December 1170 Call.
BOUGHT RUT December 1220 Call.
SOLD RUT December 1170 Put.
BOUGHT October 1120 Put.
Net Credit (all four legs): $30.67
BOUGHT Extra Long Call/December 1250: $.75
The guidelines call for the threatened side to be rolled 20 points if RUT moves above 1180. This can be accomplished with one order: "BUY Condor"; in this case all Calls. The adjustment will be:
BUY RUT December 1170 Call.
SELL RUT December 1220 Call.
SELL RUT December 1190 Call.
BUY RUT December 1240 Call.
The adjusted position will now put the short call strike at 1190, and the short put at the original strike of 1170.
The current debit to adjust the position is $8.28, but that will change after the open. Actual fill price for the adjustment will be posted when the order fills.
As always, stay keen on your risk management and trade carefully,