PB2BO In RUT

[Steven Place]

The Russell 2000 is pulling into a big pivot level at 1190 and has plenty of support if it falls underneath that.

So while I think that the RUT could head lower, odds are that it won’t crash here.

This is the trade to consider. It’s a little more complex but has good risk/reward given the timeframe.

Buy to open RUT Jan 1160/1150/1130 put butterfly for a credit of -0.90.

Here’s the ToS order:

BUY +1 BUTTERFLY RUT 100 JAN 15 1160/1150/1130 PUT @-.90 LMT

A fill of 0.80 or above is good risk/reward. Liquidity sucks here but if you float some orders out you’ll get filled as you’re providing liquidity to the people that “need” hedges into Jan opex.

So if the RUT bounces you keep the credit, and are looking at a return on risk of about 10% in two weeks. If the RUT pulls back to 1150 then you are in the sweet spot and could make a decent chunk of change.

And if the RUT breaks 1140 into Jan opex then you’re in trouble.

To put that in perspective, that would be another 4% from these levels in the next 10 trading days. It’s happened before, but I think it’s too early in the year to have these kinds of shenanigans take place.

A break under 1140 gets me out of the trade.

[Steven Place]

This trade’s in a nice spot where the sold options have decayed much faster than the long options and you have a spread where the value is now positive instead of negative.

The best course of action here is to float an order out to sell the spread back for a “credit” of -.00. I know it sounds weird but the value of the trade has actually flipped, so you could potentially get more money out than what we originally expected.

[Author]

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