RUT has reached the upside adjustment point on the December Iron Butterfly.
The RUT December Iron Butterfly has been hovering at the upper adjustment trigger point of 1300. Below are the specifics of the position and recommended adjustment:
Original Position Opened November 14:
- SOLD RUT December 1290 Call, 28.80 credit.
- BOUGHT RUT December 1340 Call, 8.10 debit.
- SOLD RUT December 1290 Put, 25.10 credit.
- BOUGHT RUT December 1240 Put, 10.20 debit.
Order was filled as an "Iron Condor" for $35.60 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT December 1380 Call
Order for extra long call was filled for $1.70.
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: $1,610.
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 the close yesterday:
RUT December Iron Butterfly:
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 1300 on the upside. However, as I mentioned when the trade was opened, RUT was trading at 1295 so are a bit flexible on the upside adjustment point.
With RUT trading at record levels, there could very likely be a pullback. However, I do not want to go too far outside the trade guidelines, so I am recommending the position be adjusted if it appears that RUT will close above 1305.
This can be accomplished with one order: "BUY Condor"; in this case all Calls. The adjustment will be:
BUY RUT December 1290 Call.
SELL RUT December 1340 Call.
SELL RUT December 1310 Call.
BUY RUT December 1360 Call.
The current debit (all four legs) is showing a mid price of 6.65, but that will change depending on when the adjustment is made.
The adjusted position will now put the short call strike at 1310, and the short put at 1290, a 20 point wide Iron Condor.
It is recommended to adjust the position before the close today if it appears that RUT will close above 1305. It is a trader's choice as to when to make the adjustment depending on your market opinion and trading schedule. Some subscribers may choose not to make the adjustment at all.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,