Major exchange problems at the CBOE this morning resulted in us not being able to make our upside adjustment in a timely fashion.
CBOE, the major exchange that RUT orders are filled at, was down due to some sort of system problems this morning. Unfortunately, this coincided with RUT continuing to climb and reaching our next upside adjustment trigger point of 940. RUT broke above 940 at approximately 10:00 am est. It appeared to me that the upward momentum was strong enough that I felt it necessary to make the next adjustment (rolling up the put spreads 20 points) shortly after that time. The adjustment order was:
BUY May 920 Put
SELL May 870 Put
SELL May 940 Put
BUY May 890 Put
At the time I entered the order, the mid price for the adjustment was a $4.67 credit. After my order was rejected, I received a message from my broker that CBOE was down due to system problems and no RUT orders were able to be executed at the CBOE exchange. Timing was of the essence, as RUT continued to move up and our position was hovering at max loss ($500). I was informed by my broker that AMEX was being used to fill RUT orders in lieu of CBOE, but that exchange was backed up due to volume. Eventually, at 10:40 am, my adjustment order was filled at AMEX for $4.25 credit, much less than I would have received if there were no exchange problems.
By the time the adjustment was filled for $4.25 credit, the position had reached our max loss of $500, so the position was closed as per our risk management guidelines. This was a very unfortunate occurrence. Since I began trading the RUT monthly trade in December of 2011, I have never had the position reach the pre-set max loss. In fact, there was only one month where a loss was incurred, and that was in December 2012 where the position was closed for less than 2% loss.
In hindsight, IF there hadn't been exchange problems and IF I could have worked the order to get a better-than-mid price for the adjustment, the position may not have reached the max loss level. But that is all hindsight, something that will get traders in trouble more times than once. I believe it's best to never look back, just trade what is presented to me as per my trade plan, and "live to trade another day."
Below are the RUT monthly trade results:
RUT Iron Butterfly Results
None of us like to pull the trigger to close a trade for a loss. But we must realize the risk involved, and accept that this is all part of our trading business. We also must realize that the key to long term success in trading is to have more wins than losses, and to keep the losses manageable to reach our annual goals as per our trade plan. We not only have the risk of market movement, but this morning's issue with the CBOE brings forward the technical risk of order execution as well.
I will be posting trade entry recommendations for the May 1 weekly SPX Iron Butterfly this evening, but wanted to get this post out before the market close today for those of you following the monthly RUT position.
PS - I also want to share with you something I've been testing; another weekly trade that my trading buddy "Q" has passed along. It is a wide Iron Condor on SPX. I will be sharing this trade with you over the next few weeks, after I have tested it for performance in a variety of market conditions.