Santa Claus (also known as the FOMC) rally kept the bulls active into the week's close; what will the New Year bring?
Despite the lackluster volume after the Christmas Holiday, RUT managed to touch yet another all-time high Friday. RUT closed at 1215, up 8 points but just slightly down from the all-time high of 1217.01. As I wrote yesterday, I prefer not to adjust an open position during such a low-volume period. In addition, if I had a crystal ball (which I don't), I would expect some profit taking as investors begin to return next week.
However, for those who have followed my newsletter, you know my conservative trading style of "have a plan, trade the plan". When I saw that RUT was about to close above the triple top as shown on the one year chart below, I felt I would once again take the conservative stance and roll out the call spreads as per the trade guidelines. Below is the summary and current position status as of the close yesterday:
Open Position Status; RUT January Iron Butterfly.
A summary of the monthly RUT position opened Thursday, December 18:
SOLD RUT January 1180 Call.
BOUGHT RUT January 1230 Call.
SOLD RUT January 1180 Put.
BOUGHT January 1130 Put.
Net Credit (all four legs): $35.15.
BOUGHT RUT January 1260 Call. Debit: $1.70
The trade guidelines call for the position to be adjusted with a 10 point move from the center strike in either direction. With RUT at approximately 1193, the position was adjusted on December 19 as follows:
BUY RUT January 1180 Call.
SELL RUT January 1230 Call.
SELL RUT January 1200 Call.
BUY RUT January 1250 Call.
Net Debit (all four legs): $7.95.
After this initial adjustment, the position had short strikes at 1200 and 1180, converting it from an ATM Iron Butterfly to a 20-point wide Iron Condor.
Yesterday the call spreads were rolled another 20 points towards the close of the day. Adjustment order summary is below:
BUY RUT January 1200 Call.
SELL RUT January 1250 Call.
SELL RUT January 1220 Call.
BUY RUT January 1270 Call.
Net Debit (all four legs): $9.75
The adjusted position now has the short call strike at 1220. The short put is at the original strike of 1180, so we now have a 40 point wide Iron Condor, with the additional long call at the 1260 strike purchased at the original trade entry. This long call is helping to keep the T +0 line flat on the upside.
Below is the graph of the adjusted position:
RUT January Iron Condor:
This position will remain open as long as RUT stays between the short strikes, until target gain is reached. The position will be closed if the max loss is reached. If RUT reaches either short strike, the threatened side will be rolled again, depending on market conditions and position status. At that point, as outlined in the guidelines, it will be most likely necessary to roll up the unthreatened side to get more credit in the trade.
The trade guidelines were most recently published on October 22, and can be found here: Link to Articles
Below is the RUT one year chart showing the break above the triple top mentioned earlier in this article:
RUT One Year Chart:
Next week's volume will be light once again, so any of the economic news releases could impact the market. A summary is below:
10:00 am Dallas Fed Manufacturing Survey
9:00 am S & P Case-Shiller HPI
10:00 am Consumer Confidence
8:30 am Jobless Claims
9:45 am Chicago PMI
10:00 am Pending Home Sales
10:30 am EIA Petroleum Status Report
All Markets Closed
10:00 am ISM Manufacturing Index
10:00 am Construction Spending
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,