Russell 2000 Weekly Income Trade

Gregory A. Clay • by Gregory Clay

Option Trading Strategist & Financial Writer • Oct 7, 2016 at 1:23 PM EDT

As evidenced in the chart below, the Russell 2000 Index (RUT) has stabilized in a trading range the past few weeks.

TheOptionPlayer.com sets up a Russell 2000 (RUT) short-term (7-day) option strategy. Investors could simultaneously:

Sell the October 14th expiration RUT $1270 call for $2.00 (Thursday’s closing quoted bid/ask mean)
AND
Buy the $1275 call at $1.40

The difference between funds received and paid out is a $.60 per share credit which we keep if the Russell 2000 closes below $1270 on Friday October 14th but immediately exit the position if it appears the price will end up higher. If the price gaps higher open the trade using higher strike prices.

Why we recommend it:
As evidenced in the chart below, the Russell 2000 Index (RUT) has stabilized in a trading range the past few weeks. Price momentum has been flat over the past month as investors commiserate about what the Fed is going to do about interest rates. We are betting that the Russell 2000 Index won’t reach the target price prior to the option expiration date in 7 days. We recently executed a series of similar trades that were profitable.

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