Question about if we can use the MCTO signals on the RUT to trade the IWM

Question:  Can I open credit spread and iron condor options on the IWM using your RUT signals? 

Answer:   Yes, you can use our analysis and signals on the RUT (Russell 2000 Index) to trade the IWM (and ETF that tracks at 1/10th the value of the Russell 2000 index – RUT).     Just make sure you select the same short leg.    For example, if we issue a signal to trade the RUT Dec 650/660 bear call spread, you could also trade the IWM Dec 65/67 bear call spread and the risk/reward profile for both trades is very similar.   It’s best to stick with 2 point or 3 point spreads on the IWM.   (i.e. either a 65/67 or 65/68 bear call spread….per this example)    For more on why we use 2 point or 3 point spreads on the ETFs, please go to the Monthly Cash Thru Options Learning Center at  http://www.monthlycashthruoptions.com/LearningCenter.htm   and read the entry  “why we usually open 3 point spreads on the SPY”

Question:  Which one do you prefer to write credit spread and iron condor options against….the SPY or IWM?

Answer:    Both have similar risk/reward profiles.   Sometimes, however, we can get better placement for our strike prices on the IWM, but it does vary from month to month.  That’s why we have to analyze the trades on each underlying ETF each month to see which underlying offers the best placement of our strike prices.

Comments (2)

DWNovember 26th, 2009 at 8:50 am

Have you ever considered using the IWM in addition to SPY for autotrading? Seems there may be more potential for consistent returns if using both.

bradrrNovember 27th, 2009 at 2:12 am

We are now trading both the IWM and SPY in the autotrade accounts. If you ever see us only opening spreads on one of the indexes in a particular month, it means that we didn’t like the technicals on the other index for that month; and we’ll probably resume opening spreads on both indexes in the following month.

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