RUT JUN Paper Trade Update

We put this PAPER TRADE on (for educational purposes only) back on May 15th with the intention of holding it until about a 4-5 days before June expiration which is June 20th. (Last day to exit this position prior to expire is Thursday June 19th). Ideally we would like to exit on Monday June 13th to allow maximum time decay before the gamma risk really starts to kick in.

RUT Iron Condor > Sell 10 contracts 740/730/720/710 for credit of $8.57 / max risk $1.43 (Credit: $8570 / Max Risk: $1430)

We entered this trade because we had a bias that the RUT would trade in the area between 710 and 740 5 to 10 days before June expiry. We entered this "tight" Iron Condor because we were able to receive a large credit to enter which limited our total risk on the trade to just $1.43 per contract. This also gives us a much larger profit potential then a traditional Iron Condor. Although the short strikes are only 10 points wide (720 and 730), we will get paid if the price is anywhere from 696 to 749 the Monday before expiry (with the current Implied Volatility) -- this is the advantage of a wide break-even area.

The other advantage to this position is that it requires less margin against your real cash which allows you to use it for other trades. Still another advantage to this trade is the extremely wide break-even area that you're able to enjoy throughout the life of the position. Because the break-even area is so wide it does not require any management throughout the trade. If the price action were to completely leave this area with little hope of returning we would just close out the position for a small loss.

With the current RUT price action and resistance still holding at 750, we are still very comfortable with position and are in a very good position to take advantage of any further moves down.

Our current P/L is up $379 or 21% ROI based on our risk capital of $1430

Below is a screenshot of the Analyze tab showing the profit curves and our breakeven levels.

RUT JUN Analyze Tab
Note the current break-even levels of 680 to 748 as indicated by the vertical red dashes on the white line.



Looking forward to the Monday before expiry, here's a screenshot of the analyze tab showing the new break-even/profit area between 695 and 750.

RUT JUN Paper Trade Idea simulated P/L curve as of Monday June 16th




Here's how the P/L will look on Monday June 16th at the current Implied Volatility levels if the price is at the strike prices below (ROI also shown):


700 - $670 / 46%
710 - $2101 / 146%
720 - $2917 / 203%
730 - $2580 / 180%
740 - $1327 / 92%
750 - (-$16) / -1%
760 - (-$908) / -63%
770 - (-$1288) / -90%

Ideally we would like to see the price settle between 710 and 730 on Monday June 16th. We would then buy back the entire IC for 100%+ profit. If the rally continues we will likely still hold on to the position. If the price pulls back in to the profit zone we will profit, if it stays above 750 we will take a small loss. The important thing is that we understand fully our risks and potential rewards with this trade. We can not lose more then $1430 + commissions/assignment cost on this position. We will avoid the assignment risk by exiting this position prior to expiry.