Recommended trade entry for Monday, April 18
Expiration Date: May 20.
Recommended Trade Entry:
- SELL RUT May 1130 Call, currently 23.30.
- BUY RUT May 1180 Call, currently 3.60
- SELL RUT May 1130 Put, currently 19.70
- BUY RUT May 1080 Put, currently 7.10
It is recommended to place the order as a single entry: SELL " Iron Condor".
Current mid price for all four legs: $32.30. We recommend trying to get filled for the mid, or slightly below. Mid prices change all the time, so there is a very good possibility that fills will vary from trader to trader.
Additional Order to Cut Negative Deltas on Upside:
- BUY RUT May 1200 Call
Current mid price: $1.30
Note that the 1200 extra 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 is to cut the position deltas in 1/2 to 3/4 at entry. As of this writing, the 1200 long call cuts the position deltas from
-12 to -5 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 for all Couch Potato Trader plays were most recently published on August 20, 2015, 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,