RUT has reached the Downside adjustment point on the April Iron Butterfly.
The RUT April Iron Butterfly has reached the downside adjustment trigger point after just one day in the trade. While I don't like to adjust the trade so early, I feel it is wise risk management to stay with the guidelines for the trade. Below are the specifics of the position and recommended adjustment:
- SOLD RUT April 1390 Call, 20.20 credit.
- BOUGHT RUT April 1440 Call, 3.80 debit.
- SOLD RUT April 1390 Put, 23.40 credit.
- BOUGHT RUT April 1340 Put, 8.30 debit.
Order was filled as an "Iron Condor" for $31.50 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT April 1480 Call
Order for extra long call was filled for $.95.
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: $1,945.
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 1380 on the downside. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT April 1390 Put.
SELL RUT April 1340 Put.
SELL RUT April 1370 Put.
BUY RUT April 1320 Put.
The current debit (all four legs) is showing a mid price of 6.55, but that will change depending on when the adjustment is made.
The adjusted position will now put the short put strike at 1370, and the short call at 1390, 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 1380. It is a trader's choice as to when to make the adjustment depending on your market opinion and trading schedule. The expiration breakeven is still a bit away at 1359 and some traders may choose to hold off, but I will make the adjustment today as outlined above.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,