The Russell 2000 Index (NASDAQ: RUT) is a low-volatility asset. It’s not likely to make any major moves (barring unforeseen events). It’s gotten as high as around 860 lately, and is in an oscillating uptrend. This index is an excellent candidate for an iron condor.
An iron condor is a trade in which a trader sells both a call credit spread and a put credit spread on the same underlying asset. The trade profits if the stock remains in a range set by the short strike prices. Let’s look at this week’s Market Taker Edge trade in RUT.
Sell the RUT May 790-800-865-875 Iron Condor
Trade the following four legs as part of a single trade:
Buy the May 790 puts
Sell the May 800 puts
Sell the May 865 calls
Buy the May 875 calls
for a total price of $3.50 or better. The trade profits if RUT stays between 800 and 865 by May expiration. This is a high probability trade as there is a wide range in which the stock must remain within. The trade has limited risk and a nice payoff if it works out. All-in-all, this is a well-structured iron condor, set up with Edge.
Dan Passarelli is the founder and CEO of MarketTaker.com, the leader in options education. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”