Sunday, August 13th, 2017

IWM Calendar Spread trading

IWM is an ETF,  a mirror image of the bigger Index Russell 2000 RUT. It trades in penny increments and that makes it attractive to trade with all the liquidity. It is a relatively  less volatile ETF, and usually has lower volatility compared to other ETFs and indexes. We have used IWM calender spread and double calendar spreads in the past.

IWM sold off in this  recent market pullback  last week, and is now making a U shaped recovery to the upside. The volatility is around 34% for calls and same for puts. This is a bit higher, but with the overall market volatility its in line.

We have decided to trade IWM with a Bullish Calendar spread to the upside and with a contingency plan to rescue the trade if things donot go our way, and if the markets sell off and start trading lower. We may just exit the trade with a small loss. So there could be 2 legs to the same trade. I suggest not using all your powder on the first leg, and keeping some in reserve, just in case.

SELL 10  JUNE 51  CALLS

BUY  10 AUGUST 51 CALLS  = Net Debit $ 1.43   10 contracts  = $1430  Debit

Break evens 46.8 and 54.95 on June expiration.

Delta= 64.9 Theta=12.60 Vega= 43.88

If IWM stays between these points, profits should results. (Click on image below to enlarge)

But the way I am looking at it, I would like to make 10% -20%  returns in the next 1 to 2 weeks and exit. That’s about in the range of $150 to $300 in profits.  We can certainly hold the trade a bit longer, if IWM stays between break even points, and has not risen fast enough  or started hitting them. Its good to make 10%-20% returns, than risk it all and lose it. We may also try to add another leg to the trade, should the market starts declining.

These are some of the core income trades that our members enjoy, and if you have been sitting on the sidelines, and market is moving past in a hurry, come and join us by signing up today. You could be on to the way to generating income this month.

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  1. […] benefits and if the volatility drops it will reduce profitability. Care should be taken to place calendars spreads only when volatility is lower. Earnings and other events always increase volatility and hence […]

  2. […] benefits and if the volatility drops it will reduce profitability. Care should be taken to place calendars spreads only when volatility is lower. Earnings and other events always increase volatility and hence […]

  3. […] benefits and if the volatility drops it will reduce profitability. Care should be taken to place calendars spreads only when volatility is lower. Earnings and other events always increase volatility and hence […]

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