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On the watch: IWM puts

Davis MartinDavis Martin ·

Why it’s on the radar: Have you noticed that every time IWM — the iShares Russell 2000 ETF — tries to push through $142, it just can’t? This is simple pattern recognition.

Jeff Bishop is using TZA instead of the IWM

What will make me act: Once I recognize a pattern, I am looking for it to happen again, so I’m  simply waiting for IWM to test $142 again; if that happens, I’ll be looking to buy to open August 18 $141 put options and will treat them as a swing trade.

The proof: Take a look at the chart; you’ll see the IWM’s trouble breaking above $142 for any material length of time:

When/how I will act: I’m looking to enter a position on an IWM test of $142. My ideal trade plan would be to hold my puts for an IWM move down to the 20-day simple moving average line of $139.94 for a swing trade. I’m always happy with a +10% swing trade using options but I think there is more there.

That said, I’m not going to be greedy trying to stretch profits on this. Truthfully, I’m greedy when others are fearful, but others aren’t fearful right now.

If IWM were to trade above $143 for two hours or more, I’d cut the loss and come back to the same trade plan, having established my new target to try to short the IWM via buying to open put options.

#-#-#

   Davis Martin is the lead publisher at DailyProfitMachine.com. He trades SPY calls and puts and swing trades mid-large cap stocks and stock options. He last traded IWM on July 21 $140 puts on June 13 for a day trade. 

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