A Bearish Broken Wing Butterfly on Russell 2000 RUT

The Jackson hole  2012 surprise is over. You may want to either read numerous websites to find out what Chairman Ben thinks (as per their conclusions) or read the speech text yourself to draw your own conclusions.

As of this writing, markets are rallying (though pulled back from the intraday high). For now, at least, Russell 2000 (RUT) is not participating in the rally. And based on charts patterns that are playing out in RUT, I am taking a slightly bearish position using next weeklies that expires next week.

The trade is structured using a Broken Wing Butterfly and is done for a $2.50 debit.

  • Buy to Open +1x RUT 805 Put
  • Sell to Open -2x RUT 790 Put
  • Buy to Open +1x RUT 780 Put

Total Debit- $2.50/ Using Weeklies that expires next week.

Here is the risk/reward profile for the trade-

RUT Broken Wing Butterfly

This trade will start to make money starting now in case RUT pullsback. However, based on expiration day risk/reward profile, the trade will start to make profit only when RUT is below 802.5. Profit quantum will depend upon RUT’s position next week. Essentially my outlook is that we will have a pullback (small or big I don’t know) either in the afternoon today (low probability) or next week. Via risking only $250/spread, this trade can make $250 to $1000/spread depending upon RUT’s movement. If RUT is above 802.5 by next week, this trade will lose all.

My target is roughly +50% profit or loss.

Disclaimer– As of this writing, I am already in the trade but I may close anytime. Pls do your due diligence before investing and invest only what you can afford to lose.







2 responses to “A Bearish Broken Wing Butterfly on Russell 2000 RUT”

  1. Mitch Lyman Avatar
    Mitch Lyman

    Interesting. The window is closing for this trade being profitable. good luck.

  2. OptionPundit Avatar

    @Mitch. Thanks for the wishes.
    The trade is a loss.

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