Today, I want to explain how to trade options on small caps, specifically the Russell 2000 ETF the IWM.
Now, the IWM is mostly made up at 23% of financials… so, when we hear that a bank is catching a bid on the trading floor, we often look to see what the IWM is doing. If the bank is up, the IWM is up. If the bank is down, then the IWM is down.
Usually small caps react first and lead the way for the market, therefore if the IWM ETF small cap goes up, then the S&P will follow behind it.
This is a great indication for market direction, however, when trading higher volatility names – like small caps, you should spread out your trades where you’re not risking as much money as buying outright call options.
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P.S. If you enjoyed this video, check out my tutorial demonstrating how to trade tech stocks using options by clicking on the button below.