The most recent high on RUT was 1094, not 1100. When it comes to adjustments I don’t like to deal with “close enough” scenarios.
The funny thing about markets is that the second time a level is tested the higher the odds that it will fail.
So my feel on the RUT here is that if the market breaks 1100 it will rocket higher.
On top of that, the market has also undergone nearly 2 weeks of sideways action. Volatility has already compressed and vol could easily expand to the upside.
When you add that third butterfly, it will significantly increase your net short delta. You’ll basically be left with a pretty aggressive short position.
Now, if back in early March the market had rocketed past 1100 without any breather, I would have added. But we didn’t get that level.
With this trade, we get stuck in a position whereby we easily lose the “high ground” on the trade if the market rips. Because the trade was looking for reversion and we’ve already got that reversion, yet it really hasn’t been enough for it to be a profit.
On top of all that we’re headed into March opex which is historically bullish… the month of March which is historically bullish… and a Fed day which is a catalyst that tends to be bullish as well.
My gut feel here is that there are still a lot of investors that are underexposed to this market. We already know from a quantitative standpoint that the level of call selling that’s been going on is pretty unprecendeted, so we can easily see the market blow up higher to screw over all those call sellers.
I’ve been in a position VERY SIMILAR to this in 2013 and by adding the call hedge I’m being proactive so I don’t get screwed over like I was back then.
Now what will happen here is if the market does manage to rip higher is I can use the profits of the call to regain the high ground on the trade and I have a lot more options available.