Trade of the Day: iShares Russell 2000 Index ETF (IWM)

The liquidity within IWM options is plentiful, allowing for price diversification

   

There’s been no problem with volume in the iShares Russell 2000 Index ETF (NYSE:IWM), even ahead of the typically sluggish holiday season. In general, bearish rising wedge patterns are easy to trade, and one of the reasons I love to trade options in index ETFs like IWM is that the liquidity within each option is plentiful, usually just a penny or two between and bid/ask prices in the options.

But there are some seasonal reasons I’m focusing more on ETFs as opposed to individual stocks.

With more companies offering a one-time special dividend to avoid paying taxes with the new 2013 tax rate that has yet to even be decided, by trading index ETFs, investors won’t wake up one morning and find a stock has jumped higher just because the CEO and board of directors accelerated a one-time dividend payout to make sure insiders get paid early.

The best part about this time of year is that ETFs don’t report earnings, or get upgrades or downgrades, so you don’t have the surprise factor that earnings bring.

I’ve actually recommended that my Parabolic Options members triple up on their exposure to  IWM put options by opening positions in several different expiration months. But to get you started, I’m recommending put options with a March expiration.

‘Buy to open’ the IWM March 80 Puts  near $2.44. Take profits when the puts hit $4.00.


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