RUT has reached the Downside adjustment point on the February Iron Butterfly, but still 19 points from lower expiration breakeven.
The RUT February Iron Butterfly has reached the downside adjustment trigger point, but we are giving a bit more room before making the adjustment. Below are the specifics of the position:
Original Position Opened January 17:
- SOLD RUT February 1360 Call, 26.90 credit.
- BOUGHT RUT February 1410 Call, 6.65 debit.
- SOLD RUT February 1360 Put, 25.30 credit.
- BOUGHT RUT February 1310 Put, 10.80 debit.
Order was filled as an "Iron Condor" for $34.75 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT February 1460 Call
Order for extra long call was filled for $1.15.
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: $1,640.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
Below is the risk graph as of the close yesterday:
RUT February Iron Butterfly:
RUT closed yesterday at 1345, but the position is holding up well and currently +$182. The expiration breakeven on the downside is 1326, 19 points away as of the close.
Because we still have some room on the downside, the uncertainty over today's US Presidential Inauguration, and the fact that the Iron Butterfly by nature is "friendlier" on the downside, I am looking at a new downside adjustment trigger point in the range of 1335 - 1340.
The adjustment will be to roll the put spreads down 20 points. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT February 1360 Put.
SELL RUT February 1310 Put.
SELL RUT February 1340 Put.
BUY RUT February 1290 Put.
The current debit (all four legs) is showing a mid price of 5.15, but that will change depending on if and when the adjustment is made.
The adjusted position would put the short put strike at 1340, and the short call at 1360, 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 the level of 1335 - 1340. 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,