RUT has reached the second Downside adjustment point on the April Iron Butterfly.
The RUT April Iron Butterfly has had a rough start; yesterday's selloff caused us to make the first downside adjustment. After the position was adjusted as per the guidelines, RUT continued to dro and closed near the downside breakeven point. Some may choose to exit the position; but I am going to suggest the following second downside adjustment. Below are the specifics of the position and recommended adjustment:
Original Position entered March 20:
- SOLD RUT April 1390 Call, 20.20 credit.
- BOUGHT RUT April 1440 Call, 3.80 debit.
- SOLD RUT April 1390 Put, 23.40 credit.
- BOUGHT RUT April 1340 Put, 8.30 debit.
Order was filled as an "Iron Condor" for $31.50 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT April 1480 Call
Order for extra long call was filled for $.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 for this trade at entry: $1,945.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
Downside adjustment made 21 March:
BOUGHT RUT April 1390 Put, 37.10 debit.
SOLD RUT April 1340 Put, 14.20 credit.
SOLD RUT April 1370 Put, 25.80 credit.
BOUGHT RUT April 1320 Put, 9.40 debit.
Net debit (all four legs): $6.50
The guidelines call for the second adjustment to be made at either short strike. However, as I posted yesterday after the initial adjustment was made, we gave it a little more room with the hope of a rebound. Again, some may choose to exit the position, but I am adjusting again by rolling the put spreads another 20 points. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT April 1370 Put.
SELL RUT April 1320 Put.
SELL RUT April 1350 Put.
BUY RUT April 1300 Put.
The current debit (all four legs) is showing a mid price of 6.10, but that will change depending on when the adjustment is made.
The adjusted position will now put the short put strike at 1350, and the short call at 1390, a 40 point wide Iron Condor.
It is a trader's choice as to when to make the adjustment depending on your market opinion and trading schedule. The adjustment will put the expiration breakeven at 1320.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,