1160 got hit today, and our upside protection has done it’s job.
Here’s what to do next:
Buy to close RUT Aug 1180 call
Sell to close 2x RUT Aug 1200 call
Effectively we’re closing out the Aug call backspread for 6.50
Next step will be to add our third butterfly:
Buy Jul 1140/1180/1220 call butterfly for 11.30
This pretty much keeps our short deltas the same but it doubles our theta gains.
Here’s the risk profile:
Don’t get me wrong, this is a “goofy” looking trade. And you’re probably concerned about that “dip” once we get under 1123.
First off, I think it’s going to be very, very difficult for the market to get back under 1123 given the breakout we just had.
Second, even if we do see that pullback, it’s actually going to be profitable simply because of the short delta exposure.
Third, if we do see that pullback, we’ll simply adjust again to get our theta back in line.
That’s not going to be the risk in the trade. The risk continues to be the upside risk. Given that we’re gapping into the upper bollinger band, it’s probably a safe bet right now to be net short deltas. If we come into 1180 in short order we’ll add some more upside protection.