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June 20, 2013

$RUT Weekly Trade

  • Strategy: Calendar spread
  • Underlying: RUT
  • Trade: BUY +1 CALENDAR RUT 100 (Weeklys) JUL1 13/JUN4 13 970 CALL @3.20 LMT
  • Trade Price: 3.20 debit per spread
  • Margin: $320 per spread
Risk Profile:


We are selling 970 call that expires next week (Jun4) and buying 970 call that expires the week after(Jul1). Options that expire closer in time will decay faster than those that expire further out in time, so we're taking advantage of time decay here. Assuming RUT doesn't move 20 points in either direction by Monday of next week, this is what this trade's risk profile should look like:

Our goal would be to get out by Monday with about 20% (of margin) profit or$65, and we don't want to lose more than 25% (of margin) on this trade or $80.