Short term
/
Sell
Trade view / 10 August 2017 at 7:04 GMT

Volatile Russell 2000 retreats to support levels — #SaxoStrats

Product Manager Futures and Options / Saxo Bank
Denmark
Instrument: IWM:arcx
Price target: 1400
Market price: 1400

Instrument: RUT:xcbf
Price target: 1400
Market price: 1400

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Background

The Russell 2000 index, which is mostly composed of small to mid-cap companies, has been lagging behind its larger brethren, such as the Dow and the S&P 500.

But things might change soon.

Russell 2000 indexRussell 2000















Source: Saxo Bank

Shares are trading near their two-month support of 1,400 points, and we see an opportunity to sell this 20 point wide vertical put spread for a credit. 

Volatility is elevated as the underlying price of the index has fallen, making puts a little more expensive. 

The trade could benefit in two out of three scenarios: the price stays the same until expiration, or rises from current levels. 

Management and risk description

We are risking $1,465 to make $535, as this is a limited risk/limited reward position.

P/L Graph
Note: the options are European-style, with no early exercise, and cash settled (AM). For further information, please check out the CBOE website.

Parameters

Underlying: Russell 2000 Index (RUT).

Status: opening.

Trade: Sell to Open -1 RUT 15 SEP 1380/ Buy to Open +1 RUT 15 SEP 1360 for net credit of $5.35 or better RUT.

Maximum risk at expiration: $1,465.

Maximum gain at expiration: $535

Return on risk: 36%.

Entry: Today, through the combination order ticket.

Stop: No stop.

Target: Market to stay above 1380.

Time horizon: 20 to 25 days

Russell 2000 5-year chart
RUT 5-year chart
Source: Saxo Bank


— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here
10 August
Georgio Stoev Georgio Stoev
Note: the symbol is RUT in the option chain NOT IWM, we got a fill at $5.35

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