At Extreme Investor Network, we are constantly monitoring the latest trends and developments in the world of investing to provide our readers with unique insights and opportunities.
Recently, investors experienced a significant shift in U.S. equities, with the Russell 2000 soaring by approximately 3.5% while the S&P 500 saw a nearly 1% decline. This divergence has sparked conversations about whether this is merely profit-taking in the Magnificent 7 or a potential sign of the megacap secular trend approaching its end. However, we believe the truth lies somewhere in between. While the small-cap index has historically lagged behind the megacap-focused S&P 500, now may be the perfect time to consider owning the iShares Russell 2000 ETF.
One of the key factors driving this shift is the recent cooler-than-expected June consumer inflation report, suggesting that the Fed may initiate interest rate cuts sooner than anticipated. This has provided a boost to small-cap companies, which tend to have higher interest rate sensitivity and could potentially see a catch-up rally in the near future.
To capitalize on this opportunity, we recommend a strategic trade involving the iShares Russell 2000 ETF:
– Selling the IWM 8/30/2024 $213 put for $5.40
– Buying the 8/30/2024 $215 call for $5.65
This spread trade will cost investors only $0.25 per one lot, offering a low-cost way to establish a bullish view on small caps. While this trade comes with risks, including the potential of owning the underlying asset, it provides an opportunity to benefit from a potential move higher in the market.
Our team at Extreme Investor Network has taken a long position in IWM and implemented this risk reversal strategy, aligning our actions with our insights. We understand that every investor’s situation is unique, and we always recommend seeking advice from a financial advisor before making any investment decisions.
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DISCLOSURES: (Long IWM, and long this risk reversal) All opinions expressed in this blog post are solely those of Extreme Investor Network and do not reflect the opinions of other entities. This content is for informational purposes only and should not be considered as financial, investment, tax, or legal advice. Before making any financial decisions, we strongly advise consulting with a professional financial advisor.