As I watched the market basically trade downward and sideways most of the morning, I was somewhat encouraged (because that favors my current positions). But, as the day wore on, the market struck me as holding up pretty well on increased volume. Thus, I re-evaluated my positions.

Around mid-day, my iron butterfly stood at a delta = -$69 and theta = +$72 - a pretty weak position. If RUT moves up only $1, I stand to lose all of the money I gain in one day from time decay. That's too much price risk, so I closed my two remaining $510 calls for $23.31 and sold two $530 calls for $12.51. By not rolling the long $560 calls upward, I reduced my upside profit potential but I also reduced my upside risk substantially. So the iron butterfly position now looks like this: one $520/$570 call spread, two $530/$560 call spreads, two $440/$490 put spreads and one $450/$500 put spread with a position delta of -$29 and theta = +$71. So I am back in my comfort zone of about a two to one theta/delta ratio.

My Aug iron condor is also hanging off the edge of the cliff, hedged by the long Sept $530 calls, but theta had deteriorated to low levels and I decided to make further adjustments rather than expose myself to any more risk. I closed 10 contracts of the $530/$540 calls for $4.10 and sold 10 contracts of the $570/$580 calls for $0.70, for a net $3.40 debit or $3,400. This boosted our theta back up to +$53 and reduced the position delta to -$14. At this point, my adjustments have greatly reduced my profit potential for this position, but I have also reduced my loss potential dramatically.

For those of you new to options spread trading, don't despair. You can start small, use simpler adjustments and build your experience over time. Understanding the various risk management techniques is crucial to successful options trading.