RUT monthly Iron Butterfly for January; too risky for entry.
As mentioned in this weekend's update, this week is the usual entry window for the monthly RUT Iron Butterfly for the January cycle. I also wrote that when I recommend a trade entry; I put subscriber's capital at risk and am always sensitive to that. I am not comfortable recommending a trade that I don't plan to trade with my own live capital.
The RUT one year chart below visualizes my reasoning for deciding to sit on the sidelines for a January RUT position.
RUT one year chart
If you look back at last year, between the last trading day of the year (12/31/15) and just 14 days later (1/14/16), RUT dropped 110 points or 10%. Moving ahead to the present, RUT has moved up 14% since the post-election rally. The Iron Butterfly does have adjustments built into the guidelines, but it would be very difficult to defend the position if we were to get similar moves in early January.
I would rather refrain from the temptation to enter a trade just because it is in the trade plan. There are times such as this when I feel it is better risk management to keep the allocated capital as cash, see where RUT may move or settle in January, and wait for the February cycle.
It is certainly a trader's choice whether to enter the trade, but I will not be recommending entry for the RUT January Iron Butterfly.
As always, stay keen on your risk management and trade carefully,