Recommended trade entry for Monday, June 22
Expiration Date: July 17, option code RUT150717.
For those who have been trading the monthly RUT Iron Butterfly, you are aware that the usual entry time is approximately 31 - 30 days to expiration. However, as I posted last week, the market volatility and news events made me uncomfortable entering this position. Today is 24 days to July expiration. There is still fairly decent credit for a new trade entry, so I am cautiously entering a July position. For those trading this live, however, it is recommended to trade a smaller position size than usual.
Recommended Trade Entry:
- SELL RUT July 1290 Call, currently 17.92.
- BUY RUT July 1340 Call, currently 1.05
- SELL RUT July 1290 Put, currently 16.40
- BUY RUT July 1240 Put, currently 4.90
It is recommended to place the order as a single entry: SELL " Iron Condor".
Current mid price for all four legs: $28.37. We recommend trying to get filled for the mid, or slightly below.
Additional Order to Cut Negative Deltas on Upside:
- BUY RUT July 1340 Call
Current mid price: $1.30
Note that the 1340 extra long call is based on a one-contract position. The exact strike of the extra long call will vary, depending on the size of the position. If the long call is purchased, the goal to cut the position deltas in 1/2 to 3/4 at entry. As of this writing, the 1340 long call cuts the position deltas from
-16 to -7 based on the one-contract example.
The extra long call will keep the T +0 line a bit flatter on the upside. The Iron Butterfly is negative-delta by nature so will get hurt more quickly with a move up rather than down. However, it is a trader's choice whether to add the extra long call; depending on your market bias.
Note that because this is a 50-point wide Iron Butterfly, the gross margin requirements in a Reg-T account is $5,000 per contract. Your broker will deduct this amount, less actual credit received, from your account, plus the cost of the long call, when the orders fill.
Update will be posted with exact position details when the order is filled.
For those unfamiliar with the strategy, the trade management guidelines were updated on October 22, 2014, and can be found here:
Link to Articles
It is recommended that the guidelines be fully understood before entering the position, or paper trade until you are comfortable with the strategy.
Trade updates will be posted as appropriate.
As always, stay keen on your risk management and trade carefully,