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) 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.