9 Dec 2008

IWM (iShares Trust Russell 2000 ETF) Bear Call spread initiated on 9 Dec 2008

Trade Summary

IWM at 47.39 (-0.74) 10 days to Dec expiration.

Sell IWM Dec 50 Call Buy IWM Dec 52 Call

For a net price of $0.51-0.52 Credit or better. Total margin required: $149 per position.

Trade Analysis

This is a bearish trade. We are speculating the end of the recent rally in the coming days. Prices have gone up too fast too much. It is likely to face major resistance very soon. Although the IWM has breached its 20-day MA, it is fast approaching its 50-day MA on a daily chart. Note that the IWM has not closed above its 50-day MA since mid-Sep. As such, we believe that the 50-day MA will present itself as a major resistance that will be difficult to breach.

Of course we are concerned about the final verdict on the bailout plan for the auto industry. We believe that it is likely that the bailout will be approved as planned. While the approval may trigger another round of rally, we believe that the market has already priced in the bailout and may instead sell on the news. Which ever way the market will go we can only guess. But the odds are good that in the next 10 days, we should see some downside moves as the major indexes hit their 50-day MA.

P/S: the major indexes are moving down fast as I typed this commentary. The last time I checked, this spread was trading at $0.46 credit. I hope you guys were quick enough to enter the trade once you receive this advisory. I was filled at $0.51 credit just 20 minutes ago! So good luck guys!

Gary

Founder, Head Trader of MarketNeutralOptions www.MarketNeutralOptions.com

Please note: All MarketNeutralOptions Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for ‘DAY’ orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. Options involve risk and are not suitable for all investors.

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