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I’m going to put on an EIP trade in RUT with 65 days to expiration.
I am buying a broken wing put butterfly, centered at 1490 with a 50 point wing on the downside and a 30 point wing on the upside. Here’s what P/L graph looks like:
I am going to scale into this trade in 1/3 or 3 Tiers.
Tier1: 1440/1490/1520 put fly
Tier2: 1460/1510/1540 put fly (RUT above 1520)
Tier3: 1480/1530/1560 put fly (RUT above 1540)I am going to set my profit target at about 15-20% return on risk and my MAL (max allowable loss) should not exceed my profit target. I will make adjustments on the downside IF/WHEN RUT trades 30 points below 1490
Order Ticket Type Asset Duration Strike C/P BTO RUT 31 JAN 18 1520 Put STO X2 RUT 31 JAN 18 1490 Put BTO RUT 31 JAN 18 1440 Put Total Debit: $0.40 RUT traded above both triggers for Tier2 (1520) and Tier3 (1540).
I’m going to ADD TIER2:
Order Ticket Type Asset Duration Strike C/P BTO RUT 31 JAN 18 1540 Put STO X2 RUT 31 JAN 18 1510 Put BTO RUT 31 JAN 18 1460 Put Total Credit: $0.10 *NOTE: Mid-price showing CREDIT between 0.10 – 0.25
1460/1510/1540 put fly. This will add NET positive delta and theta to the trade. I will also add Tier3, I’d like to see price to stay above 1540.
P/L graph:
RUT is trading above 1540. I’m going to add Tier 3 but I am using a 20 point wing on the upside instead of a 30 point wing. This will remove any upside risk.
Order Ticket Type Asset Duration Strike C/P BTO RUT 31 JAN 18 1550 Put STO X2 RUT 31 JAN 18 1530 Put BTO RUT 31 JAN 18 1480 Put Total Credit: $2.80 P/L graph:
I’m going to Sell To Close Tier 1 of this butterfly:
Order Ticket Type Asset Duration Strike C/P Sell To Close RUT 31 JAN 18 1520 Put Buy To Close RUT 31 JAN 18 1490 Put Sell To Close RUT 31 JAN 18 1440 Put Total Credit: $0.60 P/L graph:
I’m going to Sell To Close Tier 2
Order Ticket Type Asset Duration Strike C/P Sell To Close RUT 31 JAN 18 1540 Put Buy To Close RUT 31 JAN 18 1510 Put Sell To Close RUT 31 JAN 18 1460 Put Total Credit: $1.20 P/L graph:
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