Medium term
Trade view / 27 April 2017 at 10:12 GMT

Russell 2000 small caps ready to push further — #SaxoStrats

Product Manager, Options Trader, Educator
Instrument: IWM:arcx
Price target: 148
Market price: 140

The small caps are lagging in performance (5% year-to-date vs. 6.25% on the S&P500) behind their multinational brethren but don't discount them yet. Smaller companies with capitalization of $2-10 billion, are often considered as the growth engine in the US economy as they are fairly young with great growth potential. A potential corporate tax cut from 35% to 15% could grease up the growth further as it would leave them with more capital in their hands.

On the technical front, price is above its 30-day moving average and closed last night just a hair's breadth above its March 1 resistance of $140.86. Shares closed at $140.99 after making a new high of $141.82. And although we have not seen a confirmation of this breakout, we are going to establish a small position in anticipation of a follow through in the upcoming days.

Russell 2000
 Source: Saxo Bank

Management and risk description

  • We are approaching the trade with a single leg call option, keeping the risk to the premium paid. 
  • Allowing for this trend to unfold we are going to work with 16 June 2017 expiration. 
  • The trade uses less than 1% risk of account value of $25K 

P/L Graph
  Source: Saxo Bank


Underlying: IWM (Russell 2000 ETF).

Status: opening trade.

Trade: Buy +1 IWM 100 16 JUNE 2017 143 CALL at $2.10.

Maximum gain: unlimited (at expiration).

Maximum loss: premium paid ($2.10) * not including any commissions.

Breakeven: $145.10 (expiration).

trade ticket

Entry: today at the open.

Stop: no stop.

Target: Price target of $148 or profit target of 100%.

Time horizon: 4-6 weeks.

— Edited by Martin O'Rourke

Non-independent investment research disclaimer applies. Read more
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