It may be necessary to adjust RUT May Iron Butterfly to the upside again.
RUT continues to march higher; RUT is hovering at the second upside adjustment point of 1150. Below are the specifics of the position and recommended adjustment:
Original Position Opened April 18:
- SOLD RUT May 1130 Call, 23.30, credit.
- BOUGHT RUT May 1180 Call, 3.60 debit.
- SOLD RUT May 1130 Put, 19.70 credit.
- BOUGHT RUT May 1080 Put, 7.10 debit.
Order was filled as an "Iron Condor" for $32.30 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT May 1200 Call
Order for extra long call was filled for $1.30.
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: $1,900.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
RUT reached the upper adjustment point on Tuesday, April 19, the day after the trade was opened. The adjustment details are below:
Upside Adjustment April 19:
BOUGHT RUT 1130 Call, 30.26 debit.
SOLD RUT May 1180 Call, 5.80 credit.
SOLD RUT May 1150 Call, 17.80 credit.
BOUGHT May 1200 Call, 2.15 debit.
Net debit (all four legs): $8.81
The position summary after the adjustment is as follows:
SHORT May 1150 Call
LONG May 1200 Call
SHORT May 1130 Put
LONG May 1080 Put
LONG May 1200 Call bought at trade entry to cut position delta.
Below is the current risk graph:
RUT May Iron Condor:
After the first adjustment was made, the next adjustment trigger is at the short strike, 1150 on the call side. The recommended adjustment is to roll the calls again 20 points.
This can be accomplished with one order: "BUY Condor"; in this case all Calls. The adjustment will be:
BUY RUT May 1150 Call.
SELL RUT May 1200 Call.
SELL RUT May 1170 Call.
BUY RUT April 1220 Call.
The current debit (all four legs) is showing a mid price of 8.55, but that will change once the market opens and will vary depending on when the adjustment is made.
The adjusted position will now put the short call strike at 1170, and the short put at the original strike of 1130, a 40 point wide Iron Condor.
It is recommended to adjust the position before the close today if it appears that RUT will close above 1150. It is a trader's choice as to when to make the adjustment depending on your market opinion and trading schedule.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,