RUT has reached the Downside adjustment point on the October Iron Butterfly.
The RUT October Iron Butterfly has reached the downside adjustment trigger point. Below are the specifics of the position and recommended adjustment:
Original Position Opened September 22:
- SOLD RUT October 1260 Call, 18.40 credit.
- BOUGHT RUT October 1310 Call, 1.75 debit.
- SOLD RUT October 1260 Put, 22.10 credit.
- BOUGHT RUT October 1210 Put, 8.45 debit.
Order was filled as an "Iron Condor" for $30.30 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT 1315 Call
Order for extra long call was filled for $1.20.
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: $2,090.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
Below is the risk graph as of this writing:
RUT October position before adjustment:
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 1250 on the downside. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT October 1260 Put.
SELL RUT October 1210 Put.
SELL RUT October 1240 Put.
BUY RUT October 1190 Put.
The current debit (all four legs) is showing a mid price of 5.55, but that will change depending on when the adjustment is made.
The adjusted position will now put the short put strike at 1240, and the short call at 1260, 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 1250. It is a trader's choice as to when to make the adjustment depending on your market opinion and trading schedule.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,