Editor's Note

Wednesday's headline crash is behind us and odds are good it was a one-day wonder. The word impeachment was used hundreds of times on Wednesday and the U.S. is still functioning normally. The Justice Dept appointed a special prosecutor on the Russian collusion investigation and not the democrats and the press have less to complain about. They will have to wait for the results just like the rest of us. Appointing a special prosecutor just put a stop to a lot of the uproar.

There is likely to be some remaining volatility over the next two days as margin calls are covered and some traders sell the bounce after getting caught looking the other way.

In the small cap space there are not a lot of options for buying the dip. Individual stocks can remain volatile and some of them declined 7-8% today alone. I decided to go with a straight option play on the Russell 2000 ETF. That way we are insulated from individual stock movement and we can participate in any market rebound.


IWM - Russell 2000 ETF - ETF Profile

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities. Description from iShares.com

The Russell 2000 has been moving sideways since early December and has tested both sides of its range multiple times. The spike to a new high at the end of April was sold when the cat fight started in Washington. Fund managers were concerned the tax reform package would be delayed.

Unfortunately, that happened and the political headlines turned deadly with the selling climax on Wednesday.

Now that a special prosecutor has been appointed many months will pass before there is any material news out of that office. For all practical purposes the press and the democrats have lost a rallying cry. Now they have to wait like the rest of us. The market should rebound.

However, there could be volatility on Thr/Fri as margin calls are covered and weekend event risk causes traders to take profits in a shaky market.

I am bringing back the IWM option trade we tried to put on in the middle of April but could not get an entry point. I am recommending we go long at the open on Thursday and hang on through the volatility.

Buy IWM July $138 call, currently $2.22, no initial stop loss until next week.


No New Bearish Plays