Looking at the RUT Chart it appears that it might have a possibility of closing in the 730 to 740 area in May.
To cap risk, create a good risk/reward ratio and a large break-even zone we're going to look at selling a tight Iron Condor on the RUT. This is a position we will put on and not make any adjustments to.
In this paper trade idea we will sell 1 contract of the MAY RUT 740/730/720/710 Iron Condor for a credit of $8.20. Our total risk on this trade is $10.00 - $8.20 = $1.80 + commissions.
Our breakeven at May expiry (5/15) is between 711.80 and 738.19 giving us a profit range of 26 points. Our breakeven on 5/14 is between 706.14 and 743.21 which gives us a 37 point profit range.
Hypothetically if we end up at 710 the day before expiry, you can close the trade out for a $131.00 profit (less commissions).
Since you risked $180 on the trade and made $131, your return is close to a 72% return in 4 weeks. Closing out at 710 was actually below our "expiry" break even level but we are still able to profit by closing out a day before expiry -- they are very forgiving.
Max profit is acheived if you let the IC expire worthless between 720 and 730. I wouldn't expect that to happen but if it did you get to keep the entire $820.
If the RUT ends up at 725 the day before expiry you can close out the trade for about $500 and avoid any settlement day surprises.
Analyze Tab View of MAY RUT 740/730/720/710 Tight Iron Condor
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