Spread Trade in IWM May Puts

by Geoff Garbacz | 03/28/2018 06:06 PM
Spread Trade in IWM May Puts

In reviewing the most active option trades, I found an interesting spread trade. A spread involves buying one option and selling another option. In this case, it was puts.

Some bought May $141 Puts and paid $1.71 and sold the May $138 Puts for $1.31. The trade cost them $0.41 to put on instead of just buying the $141 Put for $1.71. It is interesting that
someone believe that IWM could drop to the $141 level by May 18th. The option will be worth $1.71 at $139.29. So in theory a close at $139.29 would give the trader $1.71 of a gain. Worst case the trader
loses $0.41. Not a bad hedge, but not brilliant.

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