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February 7, 2013  Thu 9:48 AM CT

IWM: SEE CHART GET CHAIN FIND STRATEGIES
The iShares Russell 2000 Fund is pulling back from yesterday's record close, and a large three-way spread is looking for further losses.

A trader sold 20,000 March Weekly 82 puts for the bid price of $0.42 while buying 10,000 each of the 87 and 77 puts for $1.18 and $0.17 respectively, according to optionMONSTER's Depth Charge system. These contracts expire on March 28, a week after the regular monthly expiration.

The trader paid $0.51 to open the position, which is the maximum potential loss if the IWM is above $87 or below $77 at expiration. The maximum gain would come with shares right around $82 at that time.

The strategy, known as a butterfly spread, is a low-cost/low-risk trade. But in this case, it needs both direction and timing to work. (See our Education section)

The IWM is down 0.7 percent at $89.80 this morning after posting an all-time high closing price yesterday. There is support around that $82 level, with the last close below that in November.
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Education & Strategy

Gamma

As we continue to discuss the Greeks, we come to the first of the strike based Greeks called Gamma. Gamma is known as the second derivative, while delta is the first.

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