This is one of those setups where I think to myself “there’s no way this will get hit anytime soon.”
Yet, given the strength we’ve seen, it’s very possible that it can happen.
The RUT cleared 1,200. I think that caught a lot of people off guard. Not that we hit 1,200, but that we cleared it so quickly.
Since then, there have been 3 days of sideways action. Instead of seeing rejection of these prices, we are seeing acceptance. Now personally, I would prefer a pullback of some sort, and that could happen.
However– IF the RUT stays strong and trades into 1,242, I will be fading it by selling call spreads.
Something like the Sep 1280/1290 bear call spread for around 2.30 credit… I’m not sure those strikes will be the right ones as I think I’ll be able to sell more premium at a higher credit. What I’m looking for is to start with a 20% return on risk on a credit spread and scale in as necessary.
If you want, you can trade the IWM instead, that’s fine– go 3 to 5 strikes wide on the bear call spread.