RUT has seen a classic “pullback” pattern, where after the strong move in early june, it has worked off overbought conditions. After retesting 1180 yesterday, we’re seeing a tiny dip. If it retests 1180 a third time, it will most likely breakout and run to 1195.
Given the short deltas in the trade, we need to buy some upside protection (again). The call backspread we had on previously as a hedge worked out well, and will continue to if we see a pop.
Sell -1 Aug 1180 Call
Buy +2 1200 Call
This trade effectively cuts our risk to the upside by half, with not a lot of loss in our theta gains. If we run to 1200 in short order, we will take the profits from the call backspread and roll the lowest fly higher.