RUT has reached the downside adjustment point on the February Iron Butterfly.
RUT has reached the downside adjustment trigger point of 1590 and and will be adjusted. Below are the specifics of the position and recommended adjustment:
Original Position Opened January 16:
- SOLD RUT February 1590 Call, 22.95 credit.
- BOUGHT RUT February 1640 Call, 6.10 debit.
- SOLD RUT February 1590 Put, 24.30 credit.
- BOUGHT RUT February 1540 Put, 9.00 debit.
Order was filled as an "Iron Condor" for $32.15 net credit (all four legs).
Additional Order to cut Deltas on upside:
BOUGHT RUT February 1730 Call
Order for extra long call was filled for $.80
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: $1,865.
Target Gain: 5% of the gross margin ($250/contract)
Max loss: 10% of the gross margin ($500/contract)
On January 23, RUT reached the upper adjustment trigger and the position was adjusted as follows:
Adjustment January 23:
BOUGHT RUT February 1590 Call, 33.50 debit.
SOLD RUT February 1640 Call, 8.80 credit.
SOLD RUT February 1610 Call, 21.10 credit.
BOUGHT RUT February 1660 Call, 4.50 debit.
Net debit (all four legs): $8.10
The guidelines call for the trade, after the first adjustment, to be adjusted if RUT reaches either short strike. The downside adjustment trigger has been reached, and it is suggested that the trade be adjusted by rolling the put spreads down 20 points. This can be accomplished with one order: "BUY Condor"; in this case all Puts. The adjustment will be:
Recommended Downside Adjustment:
BUY RUT February 1590 Put.
SELL RUT February 1540 Put.
SELL RUT February 1570 Put.
BUY RUT February 1520 Put.
The current debit (all four legs) is showing a mid price of 5.50, but that may vary depending on when the adjustment is made.
The adjusted position will now put the short put strike at 1570, and the short call at the 1610 strike, a 40 point wide Iron Condor.
It is recommended to adjust the position before the close today. 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,