It appears that the bears will continue to torment the April RUT Iron Butterfly.
As of this writing, RUT futures are down about 8 points. While anything can happen after the US market open, it is very likely that RUT will drop below the current short put strike of 1230 today. As I wrote yesterday when the downside adjustment was executed, I see two scenarios for this April position:
1) Make a second downside adjustment, once again rolling the put spreads down 20 points, or
2) Exiting the position and move on to the next trade.
It is a trader's choice which course of action to take. I will see how the market looks after the first hour or so this morning and decide whether to make the adjustment or exit the trade. There are still 21 days prior to April expiration, so there is a chance to recover for those who choose to remain in the position. However, making the second adjustment adds further capital to the position, adding to the overall risk/margin.
A recap of the current position and suggested adjustment for those who choose to adjust is below:
- SOLD RUT April 1250 Calls, 20.70.
- BOUGHT RUT April 1300 Calls, 2.60
- SOLD RUT April 1250 Puts, 19.80
- BOUGHT RUT April 1200 Puts, 7.00
Order was filled as an "Iron Condor" for $30.90 net credit (all four legs).
Additional Order to Cut Negative Deltas on Upside:
- BOUGHT RUT April 1310 Call
Order for extra long call was filled for $1.35.
RUT Upside Adjustment March 20:
BOUGHT RUT April 1250 Call, 26.20 debit.
SOLD RUT April 1300 Call, 2.90 credit.
SOLD RUT April 1270 Call, 13.80 credit.
BOUGHT April 1320 Call, .70 debit.
Net debit (all four legs): $10.20
RUT Downside Adjustment March 25:
BOUGHT RUT April 1250 Put, 23.75 debit.
SOLD RUT April 1200 Put, 7.70 credit.
SOLD RUT April 1230 Put, 15.40 credit.
BOUGHT April 1180 Put, 4.90 debit.
Net debit (all four legs): $5.55
The current position after both adjustments is a 40 point wide Iron Condor, with the short call strike at 1270, and the short put at 1230 strike.
Suggested second adjustment to downside for those who choose to stay in:
The guidelines call for the threatened side to be rolled another 20 points. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment would be:
BUY RUT April 1230 Put.
SELL RUT April 1180 Put.
SELL RUT April 1210 Put.
BUY RUT April 1160 Put.
The adjusted position would put the short call strike at 1270, and the new short put strike at 1210, a 60 point wide Iron Condor.
This is not a definite recommendation to adjust the position; it is intended to be a suggestion for those who wish to remain in the position rather than exit for a loss. Those of you who understand my conservative trading style will understand why I may choose to exit the trade, accept the loss, and move on. I will post the course of action for our trade later this morning.
As always, stay keen on your risk management and trade carefully,