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The trade is looking fine, but the fact that the RUT is not able to fill this gap leads me to believe a squeeze to 1160 is very possible.
Simply put, the fact that I really don’t want this market to run higher means it probably will… so I’m going to protect this trade against upside risk.
Because of this, we’re going to put on some upside hedging just in case we get that squeeze that I don’t want to happen.
Here’s the trade:
Sell -1 Aug 1180 call
Buy +2 Aug 1200 call
net debit: 3.00
This ties up a bit more margin due to the strike difference, and we don’t want to hold this trade for very long.
Basically, if the market squeezes to 1160 we will take this trade off for a profit and add our final butterfly. If we start to fill the gap, that’s fine too and we can just sit on our hands again.