RUT has reached the downside adjustment point on the November Iron Butterfly.
RUT has reached the downside adjustment trigger point of 1500 for the November position. Below is a summary of the position and recommended adjustment:
Original Position Opened October 16:
- SOLD RUT November 1510 Call, 20.45 credit.
- BOUGHT RUT November 1560 Call, 3.45 debit.
- SOLD RUT November 1510 Put, 23.00 credit.
- BOUGHT RUT November 1460 Put. 9.20 debit.
Order was filled as an "Iron Condor" for $30.80 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT November 1590 Call
Order for extra long call was filled for $1.10.
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: $2,030.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
The guidelines call for the position to be adjusted when RUT moves 10 points from the center of the position. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
BUY RUT November 1510 Put.
SELL RUT November 1460 Put.
SELL RUT November 1490 Put.
BUY RUT November 1440 Put.
The current debit (all four legs) is showing a mid price of 6.25, 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 put strike at 1490, and the short call strike at 1510, 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 1500.
Actual fill prices will be posted when the adjustment is executed.
As always, stay keen on your risk management and trade carefully,