iShares Russell 2000 Index (NYSE: IWM) bear call spread

For traders who are bearish on the broad market and want to take advantage of today’s rally to get short, a short call spread on an index ETF might be the order of the day. Selling the March 62/63 call spread on the iShares Russell 2000 Index (NYSE: IWM) offers the opportunity to earn a potential 37% return on risk with the short strike being only 4.2% away from current levels.

IWM Credit Spread Trade Details:

IWM is currently trading at $59.35, up roughly 1.2% today.

Credit Spread/Bear Call Spread–

• Sell the March 62 call (out-of-the-money)
• Buy the March 63 call (out-of-the-money)
• Net credit of $0.29 per spread

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

Profit/Loss Details:

Maximum Profit: $0.29 (the credit collected). This excludes commissions, though exit commissions will not be required if both calls expire worthless.

Maximum Risk: $0.71 (the difference between strikes minus the credit collected). Reward on risk is approximately 41% in 39 days.

Breakeven: $62.29 (the strike of the lower call plus the premium collected). This is 5% above the index’s current level.

For more on IWM:

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