Recommended trade entry for Tuesday, January 20
Expiration Date: February 20
Today is 30 days until February expiration; so we are entering the RUT February Iron Butterfly as follows:
Recommended Trade Entry:
- SELL RUT February 1170 Calls
- BUY RUT February 1220 Calls
- SELL RUT February 1170 Puts
- BUY RUT February 1120 Puts
It is recommended to place the order as a single entry: SELL " Iron Condor".
Current mid price for all four legs: $36.55. We recommend trying to get filled for the mid, or slightly below.
New Plan: Additional Order to Cut Negative Deltas on Upside:
- BUY RUT February 1270 Call
Current mid price: $1.00
Note that the 1270 long call is based on a one-contract position. The exact strike of the extra long call will vary, depending on the size of the position. If the long call is purchased, the goal to cut the position deltas in 1/2 to 3/4 at entry. As of this writing, the 1270 long call cuts the position deltas from -6 to -2 based on the one-contract example.
The extra long call will keep the T +0 line a bit flatter on the upside. The Iron Butterfly is negative-delta by nature so will get hurt more quickly with a move up rather than down. However, it is a trader's choice whether to add the extra long call; depending on your market bias.
Note that because this is a 50-point wide Iron Butterfly, the gross margin requirements in a Reg-T account is $5,000 per contract. Your broker will deduct this amount, less actual credit received, from your account, plus the cost of the long call, when the orders fill.
Update will be posted with exact position details when the order is filled.
For those unfamiliar with the strategy, the trade management guidelines were updated on October 22, and can be found here:Link to Articles
It is recommended that the guidelines be fully understood before entering the position, or paper trade until you are comfortable with the strategy.
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,