Iron Condor in RUT

[Steven Place]

We’re going to put on antoher round of iron condors, and we’re doing it unbalanced to start off. Half as many call spreads as put spreads as that will reduce the directional exposure in the trade to start off with.

Here’s the months, strikes, and potential fill prices.

On the put side, 1.10 is a reasonable fill, you may have to walk it down to 1.05.

And on the call side you’ll probably have to go down to 1.40 to get any fills initially.

Here’s the adjustment strategy:

IF RUT breaks to new all time highs, we will roll the call spread up 30 points and double size– this will not increase our margin but will put us to full risk on the upside.

If RUT breaks under 1210 we will add some short deltas to hedge… probably by way of an Oct put spread.

Expected time in trade is 30 calendar days, expected return is 50% of maximum credit received.

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[Steven Place]

I’m going to be a little more proactive here and adjust before we hit 1180. The RVX is high which definitely hasn’t helped the trade, but it allows us to roll the put spread without a massive hit.

This is going to get complicated so we’ll step through it.

The total position consists of:

1. Bull Put Spreads
2. Bear Call Spreads (Half Size)
3. Put Spread Hedge

Current greeks on size of 20 put spreads and 10 call spreads:

Delta: 56.55
Theta: 31.18

What we’re going to do is:

1. Close out the put spread hedge for a profit.
2. Close out the bear call spread
3. Open a new set of bear call spreads, still at half size
4. Roll the Bull Put Spread Lower

The only thing that “costs” money is rolling the put spread lower. All the other things are put out there to help reduce the cost of the roll.

Trade #1:

Sell to close RUT Sep 1220/1180 Put Spread @19.30 or higher.

Trade #2:

Buy to close RUT Sep 1320/1330 Call Spread @0.10 or higher

Trade #3:

Sell to Open RUT Sep 1270/1280 Bear Call Spread HALF SIZE @.70 or higher.

Trade #4:

Buy to Close RUT Sep 1160/1150 Put Spread @2.70 or lower

Trade #5:

Sell to Open RUT Sep 1130/1120 Put Spread @1.70 or higher

Here’s what the trade will look like after all the trades are done:

And the greeks:

Delta: 32
Theta: 66

IF 1160 is broken we’ll add another downside hedge.

IF 1260 is broken we will probably be out of the trade already but if not we will roll the call spread and ADD more size.

[Steven Place]

There’s some rolling and other things we need to do here but right now we just need a sanity hedge.

I’m going to cut delta in half by purchasing 2 Oct 1070 puts at 22.50.

If you have smaller size, use IWM Oct puts, whatever the 25 delta put is. I’m assuming it’s 107.

This will effectively “lock in” a loss on the trade assuming no further adjustments, but that’s probably what is going to happen in this trade anyways.

If we get a retest of the most recent lows and possibly an extension, we will close out the puts and use those profits to roll the Sep put spreads lower, and will re-add some more call spreads.

[Steven Place]

Time to get the heck out of this trade!

Here are the orders:

1. Close the hedge:

Sell to Close RUT Oct 1070 Puts @11.00

2. Close the Put Spraed:

Buy to Close RUT Sep 1130/1120 Put Spread @2.00

3. Close the Short call on the call Spread

Buy to Close RUT Sep 1210 Call @0.20

That will get you out of the trade. YOU DO NOT WANT TO HOLD THIS INTO OPTIONS EXPIRATION.

I’ll do a post-mortem on this trade after the exit.

• This reply was modified 10 years, 10 months ago by Steven Place.

[Steven Place]

For those that didn’t get filled yesterday, here are this morning’s prices:

RUT Oct 1070 Puts: 9.90

RUT Sep 1130/1120 Put Spread: 1.67

RUT Sep 1210 Call: 0.20

Risk Analytics:

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