Right after I closed out of my August I.C. on RUT, I put on another for Sep. I will continue to do this same type of trade each month to bulk up my portfolio and hedge against riskier options trades. This strategy is fairly conservative in that the break-even is spread far apart so the stock can fluctuate a lot and still be profitable. This can allow for you to size the overall trade up to 20-30% of your portfolio, as long as you manage this beast. This type of trade should be legged into by 3rds. So I placed the first 3rd today and I will leg into the other parts later if I am still profitable. Size appropriately!
SOLD VERTICAL RUT 100 SEP 08 650/640 PUT @ $1.00
SOLD VERTICAL RUT 100 SEP 08 800/810 CALL @ $0.60
This gives me a huge B/E between 648.63 & 801.87. So the stock can fluctuate dramatically but as long as it stays within this range, I profit. Once the stock starts approaching one of the B/E lines, then I can adjust it and make it delta neutral by adding another vertical or buying or selling calls or puts on it.
exit plan: Get out if my delta risk is 5% of my overall trade size. Get out 1 week prior to expry. Get out if it approaches B/E limit and cannot be managed appropriately for it to be profitable.
Total credit 1.60/ Risk 8.40= 19% ROI potential
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