Yesterday, I finally closed the RUT butterfly to exit all December positions with 2 days left for expiration. In the last week of the butterfly, I observed it to receive a 15% of max potential profit while RUT price was very close to the short strike of $835. It did not reach my target of 20% though. After a couple days of wiggling by the RUT, I had to sell this spread for a minor loss. The sell order which was 5 cents below mid price was executed immediately.
This trade reinforced my understanding of butterfly spreads. A normal butterfly would start to gain value in the last 7 days if market moves in the desired direction. A unbalanced butterfly would start to gain in about 2 weeks to expiration.
Unbalanced Butterfly spreads are good adjustment vehicles in bull market only if the portfolio expiration date is close to 2 to 3 weeks and one intend to hold the option positions close (10 to 5 days) to expiration. If there are more than 3 weeks, unbalanced butterfly spreads may not be good adjustment strategy, depending on its Delta and Theta mainly. If the adjustment trade brings little delta and theta, it's usually a bad adjustment since it does not impact the portfolio much at the adjustment time. For this reason, a normal butterfly is not good adjustment for the smooth option portfolio that I trade. In non-bull market, the unbalanced butterfly may not be good adjustment strategy due to its negative Vega.