Carter Worth And Mike Khouw's iShares Russell 2000 Index (ETF) Trade
On CNBC's Options Action, Carter Worth shared with the viewers his analysis for iShares Russell 2000 Index (ETF) (NYSE: IWM). He presented a chart that shows that iShares Russell 2000 Index (ETF) tripled the performance of the S&P 500 since 2000 and he sees that as a problem.
After a recent breakout above $119, the stock has started to lose its strength and Worth believes that it is not good when a stock surrenders its gains so soon after the breakout. Worth has also showed that iShares Russell 2000 Index (ETF) is currently trading above its trend line and a return to the trend line would mean a pull back of 5 to 6 percent.
In September 2014, analysts projected that the components of Russell 2000 Index are going to earn $55.90 per share in 2015 and now they have revised that number to $43.90. The new estimate sets price to earnings for the Russell 2000 Index at 27.30, which Worth sees as expensive.
Mike Khouw suggested an options trade to make a bearish bet and potentially hedge a long stock portfolio. He would buy the October 120 put for $4.15 and sell the October 110 put for $1.30. The put spread would cost him $2.75 and the breakeven would be at $117.25. If the stock trades to $110, he would make a maximal profit of $7.25.
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