Trade Update – Rolling $IWM Dec Put Spread

by CC December 11, 2015 11:23 am • Commentary

In mid October we entered a bearish trade in IWM, the Russell 2000 etf. Our main reason for targeting IWM was its relative weakness and the technical set-up which looked atrocious. Here was the trade and rationale:

I want to revisit this idea as we have our most recent QQQ put trade rolling off with today’s options expiration and shift the exposure to the IWM. This works as either a straight short of the market or as a hedge vs a portfolio. Here is the trade:

IWM ($115.25) Bought Dec 18th 115/105 put spread for 2.50

-Buy to open 1 IWM Dec 115 put for 3.55

-Sell to open 1 IWM Dec 105 put at 1.05

Rationale:  in my opinion, the technical set up looks atrocious

At the time IWM was $115 and we were wrong on direction fairly quickly, with the etf trading as high as $120, before being rejected at technical resistance. That meant this trade as been a loser for most of its existence. But now it’s back below our long strike and a slight winner. We don’t want to be greedy when we get bailed out but we want to keep the short exposure for a possible break down from here. So here’s what we’re doing:

ACTION – Sold to Close IWM ($112.80) Dec 115/105 put spread at 2.80 for a .30 profit
New Trade: Bought to Open the IWM ($112.80) Dec 112/107 put spread for $1.10

Rationale – this roll reduces our risk dramatically into a week that could have a fairly binary outcome following the FOMC meeting leaving us little time to maneuver with 5 days to Dec expiration.  We are now targeting the early October low, risking $1.10 (0.80 net with roll) to possibly make up to $3.90 (4.20 net with roll):

IWM 1yr chart from Bloomberg
IWM 1yr chart from Bloomberg