RUT January Iron Butterfly has reached the downside adjustment trigger.
Yesterday's pullback in the afternoon brought the January RUT position to the downside adjustment point of 1140, the same day the position was opened. However, as outlined in the guidelines, the trade was not adjusted on the first day; we got a decent credit for the entry and the position is in decent shape.
A recap of the current position and suggested adjustment follows:
- SOLD RUT January 1150 Call, 22.80 credit.
- BOUGHT RUT January 1200 Call, 4.10 debit.
- SOLD RUT January 1150 Put, 24.00 credit.
- BOUGHT RUT January 1100 Put, 9.10 debit.
Order was filled as an "Iron Condor" for $33.60 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT January1235 Call
Debit for long call: $.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/Risk for this trade: $1,735.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
The graph of the existing/original position as of the close yesterday is below:
RUT January Iron Butterfly:
The guidelines call for the threatened side to be rolled 20 points if it appears that RUT will close below 1140. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT November 1150 Put.
SELL RUT November 1100 Put.
SELL RUT November 1130 Put.
BUY RUT November 1080 Put.
As of this writing, the net debit (all four legs) for the above adjustment is $5.75, but that will change depending on when the adjustment is made.
The adjusted position would put the short put strike at 1130, and the short call at the original 1150 strike, creating 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 1140. Actual fill prices will be posted if the adjustment is executed.
As always, stay keen on your risk management and trade carefully,