Trading Range Has Set Up Russell 2000 Index For A Weekly Trade

By Gregory Clay of TheOptionPlayer.com

Option Trading Strategist & Financial Writer • Sep 2, 2016 at 8:09 AM EDT

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

Sell the September 9th expiration RUT $1260 call for $1.75 (Thursday’s closing quoted bid/ask mean)

AND

Buy the $1265 call at $1.20

The difference between funds received and paid out is a $.55 per share credit which we keep if the Russell 2000 closes below $1260 on Friday September 9th 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. See Guidelines page for explanation on how trade is set up.

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.

52-Week High: $1251.33
52-Week Low: $943.10

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