Today was another volatile day in the markets, trading strongly upward for most of the day and then surrendering much of those gains in the afternoon, only to trade back up, with RUT closing at $570.74, near the day's high of $572. This is an amazing run - almost a perfect string of upward moves from July 10 to today, nearly a 20% increase in the Russell 2000 index.

By noon, I had decided my August iron butterfly had run its course. I closed the 560/620 call spreads for $17.61, the 570/610 calls for $12.84, the 470/520 puts for $1.30, and the 480/530 puts for $2.05, resulting in a net loss of $4,210 or 24% on capital at risk. The original maximum profit for this position was $6,975; I would have expected to realize about half of that as a potential gain, so this loss is a little larger than I would consider ideal (I try to hold losses to less than a normal month's profit in that strategy). As you will recall from my blog last Friday, I knew that last adjustment was a borderline move, but I was willing to take the additional risk to give the market a few more days to pull back. But this market is just not looking back.

My Aug iron condor is still in play, but I closed the 10 contracts of the 570/580 calls today. I left the Sept $530 call in play to protect the remaining 10 contracts of the 590/600 calls. At this point, the best I can expect will be a breakeven or a small loss after commissions. Current position P/L = -$2,325, delta = +$5, and theta = +$97. Our theta/delta ratio is now healthy, but our short $590 calls have a delta of 27, so we are not out of the woods yet. The important point to note is how I have hedged my upside risk with the Sept calls, rolled spreads upward, and closed spreads as the market has continued to rally. The net result is that our worst case scenario would involve a loss of about half of a normal month's profit. Risk management is essential to successfully trading the iron condor (and any other option strategy for that matter).