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Okay, guys. We’re going to go through an IWM double calendar. This is how we will begin building our portfolio. We don’t want to have just a single position on. In the other videos, we saw we put on an EEM position, double calendar. Now we’re going to go after the IWM.
The IWM is highly liquid. The option prices are really excellent. You can see that if we take a look at the May 68 strike, there’s only 2 cents in between the bid and ask. They are really tight bids and spreads, and they’re highly liquid. There is lots of open interest on these, and they’re pretty easy to get filled. We’re going to take a look at what we can do here.
On a new position, this is selecting a new position on the IWM. For the May options, we have 32 days to expiration. We’ll probably go with the May, and we’ll go with the June quarterlies. Because the April options have not expired yet, they don’t have the June regular options, so we’ll go with the quarterlies. That’s fine.
I just want to double check on the implied volatilities. Let’s say that if we’re doing the 67s, they’re 29.95% on the May options. On the 67s they’re 29.69%. You don’t get a lot of negative or positive skew. It’s very small on a lot of the index options. They don’t have earnings. You’ve got the IWM, which is the I-shares Russell 2000 Index. You have 2000 shares there. 1 or 2 earnings are the earnings of quite a few of the stocks. It’s not going to have that much of an impact on the index options themselves.
Normally, that’s not too much of an issue. When we get into selecting individual stocks on another video, that will be an issue. But not in this case. What we want to do is, we want to take a quick look at the graph of the IWM. On the TOS platform, it’s pretty easy. I tend to use the profit charts. I also have the charts that TOS provides, but I have it pre-set for the technical analysis, the quick review of the market direction that I showed you in the videos on using the TOS platform. Normally, when I take a look at the index or stock, I’ll use the profit charts.
What we have right here is major overhead resistance, right around the 73 area. Like I said, I don’t like to predict price, but support and resistance areas are important, as well as channels. I’ve looked at the channel here, and we’re definitely in a downtrend channel. As you can see, from about going back to August, we had this big sell-off here in August, and we’ve just been trading and trending down since then.
What I want to do is take a look at the major resistance and support areas. Right around the 74 area is a major resistance area. It was support here, and what happens to support? It turns into resistance after it breaks through. It hit it here, it hit it here, it attempted it at these two points. It came up very close to it here, but then it sold off.
On the downside, it looks like around 64 is the support area for the IWM. We want to remember those support and resistance points, when we go in and set up our double calendar, because we like to have our breakevens line up with those points. That gives us the widest possible range.
Also, statistically, the probability is in our favor that the IWM – unless we get into a real bull market here – will exceed those. All we have to do is adjust our trades accordingly. We always trade with confidence. We set up our trades initially. We always give ourselves enough time to make adjustments, if necessary. And we anticipate the future, and then manage trades once they get out of hand. That’s all there really is to it. We can trade with confidence, because we know what to do ahead of time.
I’ve also set up this little blue channel here, which on the upper hand – remember, support becomes resistance; resistance becomes support. This support down here, I put at the upper trend channel line. It looks like it hit it here, and it bounced off. It came back down through, and then hit this lower support blue line, if we get into an up channel line.
I’m trying to set the channels ahead of time. I’m trying to anticipate a little bit. Not a lot, but a little bit. It looks like we’ve hit the support on this new uptrend channel here, and then again today. It looks like it’s holding. It might be the beginning of a new uptrend in the IWM. We’ll have to see how this goes over the next 30 days, while we’re in this trade.
The indexes today have been hovering above and below positive territory. The Dow Jones was up, at one point, by about 20, 30 points. It’s been down 20, 30 points. Right now, it’s about -7 points. That doesn’t make too much of a difference for how we put on this trade, but it’s just interesting to know.