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On 12 Feb, CPI data was announced and market generally opened negatively. I noted that IWM price was at 150 moving average (MA). For the recent times, the price usually finds support and reacts on the 150 MA. Hence, I took the view that IWM price should stay above 150 MA and I decided to open a Bull Put Spread with strikes $208/$213, date of expiry 21 Mar 2025, for credit of $0.80. I’ll get to keep the credit if price stays above $213 on 21 Mar 2025. The total risk of this trade is $4.20 ($5 spread – $0.80 credit received), which is approx. 1% of my total capital.

Technical analysis for IWM (Timeframe: Daily Chart)

Screenshot of my position captured on 16 Feb 2025. Notice that the delta for strike price $213 is <0.2

Here are my considerations for entering this trade as well as my plans to take care of my risk and rewards:

1.      Forming my outlook:

• Price usually reacts and bounce up on 150 moving average.

• The above observations give me an outlook that price should stay above 150 moving average of $222.55 for IWM.

2.      Taking care of my risk:

• If price moves down, I think the potential support levels are $217.63 and $213.97. $217.63 is the 200 moving average while 213.97 is the recent swing low.

• For the short PUT strike price of $213, the delta is less than 0.2. This may suggest a 20% probability of price reaching $213, which may be interpret that a probability of 80% that the price stays above $213.

• I plan to close or roll the trade if price drops below $213.

3.      Taking care of my reward:

• If the trade has achieved 50% of the credit before 3 Mar, I’ll close the trade.

• If the trade has achieved 70%-80%, I’ll close the trade as well.

Screenshot of the option analysis captured on 16 Feb. The price is usually not correct when market close.

In summary, I am taking the view that IWM price should stay above the 150 moving average @ $222.55. I shared the entry of Bull Put Spread as well as my trade plan for the trade.

Comment below if you have any queries. Feel free to share with me if you have a stock in mind and wish to use options for your trades. I may write an article of your stock for discussion and education within this community.

Happy trading 😊.