Let’s say the reference point is 1000, the RUT moves to 1035, and causes the delta theta ratio to be greater than 1.5/1.
So I roll up the 950/1000/1050 20 points to 970/1020/1070 and my reference point is still 1000 right?
That would be correct. The only time the reference point would change would be in the event of a roll back.
The next day the RUT moves up to 1045 and here is my question: Do I now add the 2nd 3rd which would be another 970/1020/1070 since that I am 40 points over the reference point?
Yes, you would add the second third but the second third is always added 20 point higher than the 1st third so if you have 1 butterfly that you rolled to 970/1020/1070, with a reference at 1000, then the second third would be added with the asset over 1040 and it would be 990/1040/1090