I got a heads up this morning about a pretty darn interesting trade that came into the Russell 2000 (RUT) pit this morning. With RUT around 1300 there was a put butterfly that is looking for the small cap benchmark to be about 100 points lower on January 20th of next year. Not only is that standard option expiration date it is also the day we will inaugurate our next president.
The specific trade involved buying 7,000 RUT Jan 1240 Puts for 20.50, selling 14,000 RUT Jan 1200 Puts at 12.80, and then finishing up by purchasing 7,000 RUT 1170 Puts for 9.05. The net result is a cost of 3.95 per spread and a payout that looks like the diagram below if the trade is held through expiration.
Note the broken wing nature of this spread means that anything under 1236.05 results in some sort of profit at expiration. Needless to say, this trader would be very happy with RUT settlement on the open January 20th to come in right at 1200.00.
Since the Russell 2000 has had quite a move lately I decided to open my LiveVol Pro platform and check out how this trade matches up with the price action. On the chart below I highlighted the break-even point on this chart and found it interesting that this trade does well if we just give back most of the post-election gains by inauguration day.