Earlier today, I discussed a trade set up in the Russell 2000 Index options. I looked at a Non-Directional Income Trade with about 60 days to expiration. I’ve outlined my trade set up as well as my risk management plan for this trade:
Trade set up: I’m looking to buy a slightly OTM put butterfly with a 50 point wing on the downside and a 40 point wing on the upside.
This gives me a slightly bearish directional exposure and puts time decay of options on my side.
I am looking to scale into this trade as RUT trades higher and I will adjust my Profit Target as well as my stop loss as I add risk to the trade.
I will look to add another butterfly at higher strike prices IF/WHEN RUT trades above 1530 and 1570 and I will take this trade-off IF/WHEN RUT trades under 1440 or I hit my Max Allowable Loss.
I’m looking to make about 10-15% return on risk in this trade and I don’t want to lose a lot more than what I’m looking to make.
This is a very simple trade set up and we have a trade guideline that will dictate HOW and WHEN this trade needs to be managed.
We’re going to send out this trade alert to our income trade service members. Click here to start your 30 day trial for one single dollar.
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11/01/17 Update:
We’re going to adjust this trade by:
1. SELL TO CLOSE Tier 1 – 1440/1490/1530 put butterfly
| Order Ticket | ||||
| Type | Asset | Duration | Strike | C/P |
|---|---|---|---|---|
| STC | RUT | 15 DEC 17 | 1530 | Put |
| BTC X2 | RUT | 15 DEC 17 | 1490 | Put |
| STC | RUT | 15 DEC 17 | 1440 | Put |
| Total Credit: | $8.00 | |||
2. BUY TO OPEN Tier 1 – 1420/1470/1500 put butterfly
| Order Ticket | ||||
| Type | Asset | Duration | Strike | C/P |
|---|---|---|---|---|
| BTO | RUT | 15 DEC 17 | 1500 | Put |
| STO X2 | RUT | 15 DEC 17 | 1470 | Put |
| BTO | RUT | 15 DEC 17 | 1420 | Put |
| Total Debit: | $1.50 | |||
Video explaining the trade: