RUT has reached the Downside adjustment point on the September Iron Butterfly.
The RUT September Iron Butterfly has reached the downside adjustment trigger point. Below are the specifics of the position and recommended adjustment:
Original Position Opened August 15:
- SOLD RUT September 1240 Call, 18.80 credit.
- BOUGHT RUT September 1290 Call, 2.25 debit.
- SOLD RUT September 1240 Put, 20.30 credit.
- BOUGHT RUT September 1190 Put, 7.19 debit.
Order was filled as an "Iron Condor" for $29.75 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT September 1300 Call
Order for extra long call was filled for $1.35.
Margin/Risk is calculated by the width of the wings ($5,000), less credit received, plus the cost of the extra long call.
Margin for this trade at entry: $2,160.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
The guidelines call for the threatened side to be rolled 20 points if RUT moves up or down 10 points from the center of the position or 1230 on the udownside. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT September 1240 Put.
SELL RUT September 1190 Put.
SELL RUT September 1220 Put.
BUY RUT September 1170 Put.
The current debit (all four legs) is showing a mid price of 5.95, but that will change depending on when the adjustment is made.
The adjusted position will now put the short put strike at 1220, and the short call at 1240, a 20 point wide Iron Condor.
It is recommended to adjust the position before the close today if it appears that RUT will close below 1230. It is a trader's choice as to when to make the adjustment depending on your market opinion and trading schedule. I will likely wait until after the release of the FOMC minutes this afternoon before adjusting, depending on market action as the day progresses.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,