Why is the IWM jumping to the biggest gains of the year?

BY ANDREW GIOVINAZZI

July 16, 2024

Yo Pit Crazies,

Licia is going yard on Wednesday to spill the beans on her latest innovation in trading. Check it out here.

If I buy options I want them to explode. I want them to move so the cheaper the option is relative to what I think the move will be is the ticket. Over the last 5 trading days since the CPI report, the Russell 2000 ETF (Ticker: IWM) has been on a crazy moonshot.

A major index that was flat for the year decided to join the party all in a short period of time. To get a sense of the move, 8% in a year is an average gain for the S&P 500. The IWM did it in 4 trading days. When I look at the right side of the graph, one of these things is not like the other.

6 month Russell 2000 chart

Of course Licia will cover this kind of logic on Wednesday.

Does the Russell have more room to run?

The IWM has not made a new high since 2021

You remember those days? Gamestop Inc (Ticker: GME) was the most valuable stock in the index and folks could not get enough stocks with those Stimmy Dollars. The IWM is full of stocks where inflation hurts profitability. Big Tech does not have that problem with their endless growth. Thursday was a massive sell the Tech and buy the Russell day.

That rally has not abated and even if IWM hits $220 this week they are still underperforming SPX by 50% this year. What set in motion this rally, which is two parts:

The Presidential Race where Joe Biden looks tougher to elect and with that his inflationary policies go out the window

Reasonable values in Main Street stocks in IWM as we keep rotating out of tech.

Once those ranges are set in motion it will take more time to cool down the action. I bought some IWM strangles, call and puts, for the Jul19 cycle. I will close the calls when IWM gets to $220 this week. The options I bought are very cheap relative to the move.

Tomorrow I will talk about the crazy upside skew in IWM. The skew is downright Meme-orable.

Don’t forget Licia at 8pm on Wednesday.

To Your Trading Success,