Dec 2016 Swing #1 – RUT

8 Dec 2016 – Entry

  1. RUT is trading at its 10 years high. Fed will be announcing it’s decision on interest rate on 14 Dec 2016, which market is expecting it to raise it’s interest rate from 0.50 to 0.75.
  2. With these two reasons, there is a chance that RUT to move downward next week in anticipation of the Fed announcement. So I decided to open a swing trade which will be closed latest on 14 Dec 2016 before the FOMC meeting at 2pm.
  3. Since it will be closed within next week, I have chosen options that will expire on 16 Dec 2016. This will give me the highest Theta possible. I have chosen the broken wing butterfly strategy because:
    • It is cheaper. I got it at 1.80 per Fly. With this my loss is capped at 180 per Fly even if it continues to move up and the option expired worthless.
    • If it moves downwards, the increasing IV will increase the option premium and also move into the profit zone, and I will have a chance to close the trade with a nice profit.

Risk profit of the BWB during trade entry.

14 Dec 2016 – Exit

  1. RUT started to move downwards slowly from 12 Dec 2016. The underlying price movement did not generate profit. However the Theta had helped and by today, Theta and the increasing IV in anticipation of Fed announcement in a few hours time had helped generated enough profit for me to exit the trade.
  2. Bought the BWB at a debit of 1.80, and sold to close for a 3.50 credit.
  3. Nett profit for this trade 158.96 per Fly.

This was captured after I closed the trade for a 3.50 credit. Always follow plan and book your profit, and never chase the maximum profit because you will never know when the trade could turn from a winner to a loser.


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