Iron Butterfly - Mango - Guidelines

Setup
Vehicles RUT

Timing 42-50 days prior to expiration

Choose ATM strikes for the shorts. Generally use a 50 (RUT), point strike width for the wings on
Strike Selection
the put side. Use a narrower wing on the call side, typically 40 points.

Cut position delta to -3 per butterfly or less, depending on upside and downside P&L at break-
Initial Setup
even; generally 35-40 point call wing will accomplish this.

Profit and Loss

Target Profit 15% of the original margin

Maximum Loss 20% of the original margin

Exit once target profit is reached. Normally exit the trade on Friday one week before expiration
Tighten the Noose
or Monday of expiration week in any case.

Adjustments & Profit Taking

Position Delta
Adjust when the delta is > (# of butterfly spreads X wing width divided by 5 and 6)
o Example: 2 butterflies, with a wing with of 50 pts = 2 x 50 / 6 = delta 16.66
(i.e. +17 or -17) and dividing by 5 gives delta 20. This is the adjustment
range. This is an approximation of a conservative delta to adjust, not an
absolute rule. You will want to take into account your P&L as well.

When still inside the tent (inside the break-evens) adjust by rolling some or all of the
short strike contracts in the direction of the move (short calls for up moves, short puts
Short Strike Delta
for down moves) to cut the position delta in half (or by 2/3 for larger moves).

At the Break-Even
If at the break-even or beyond, roll the offending vertical spread of the butterfly further
out of the money by about 1/2 of the wing width (i.e. for RUT 50 point spread, roll out
20 (or rarely, only if you have missed your adjustment point 30) points to widen the
tent. You may also need to cut the width of the spread by placing the long closer at this
point to cut the resulting delta if it is out of the range.

If the underlying reverses, reverse any debit spreads previously added (i.e. roll the shorts back
Adjustment Notes towards the original short position, but only until the spread width is the same as it was
originally) in the opposite direction before purchasing new debit spreads in the new direction.

If the delta of either short strike (put or call) goes under .10, you may consider rolling that
Profit Taking spread closer to the money (generally I use the first strike above .10 delta - about .15) , in order
to get more credit on that side of the trade.