Buy Trade Alert for IWM Call Spreads

After Wednesday’s rate hike, I think the Federal Reserve is done raising rates, at least for now. The most likely move at this point is that the Fed lowers rates, the only question is “when.” At this point, a Fed pivot really does come down to how inflation, the economy, and the labor market perform over the next 3-9 months.

Even though there are a lot of outstanding questions about the “when,” regarding the Fed’s next move, one thing we know is that without any additional Fed rate hikes, lending costs are going to stabilize. That’s great for companies that rely on borrowing money to grow and keep operations humming along because now they can forecast future capital needs and related borrowing costs with a greater degree of certainty.

With the Fed rate hikes on pause, I think we’re going to start to see a rotation back into riskier asset classes such as small cap stocks, and today we’re going to trade that rotation by way of iShares Russell 2000 ETF (IWM), an exchange-traded fund that seeks to track the investment results of an index composed of small-capitalization U.S. equities.

In addition to a sector rotation that could favor small caps, IWM is trading at $174.00, which is just above support around $170.00. If shares bounce higher, as they’ve done twice before since last December, we could see a quick move up to $180.00, then to $188.00, and then on to $195.00.

That’s represents a great risk/reward scenario and we’re going to take advantage of it today.

Action to take:

1. Buy-to-open IWM June 16, 2023 $179/$180 Call Spread for $0.45 or less. Plan on exiting the position for a 100% profit.
2. Buy-to-open IWM July 21, 2023 $184/$185 Call Spread for $0.40 or less. Plan on exiting the position for a 100% profit.

Cheers,

Shah Gilani