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A new peak feels like a moment for a big move, but the fund's own numbers suggest a quieter path is the wiser one.
Today, we’re going to look at a long strangle trade due to the low IV percentile, that will profit if IWM makes a big move in either direction in the next few weeks.
<body><p>STORY: The iShares Russell 2000 ETF (IWM) was trading lower on Wednesday (July 22).</p><p>"The catalyst for small caps being down is a rise in interest rates," Lang said. "Small caps are anathema to higher interest rates."</p><p>"We're seeing steady rises [in rates] over the past several weeks," he noted, adding that the 10-year Treasury yield is "pushing up against 4.7%."</p><p>"Once it pushes past through 4.7%, I think the wheels come off on some of these small-cap stocks," Lang said.</p></body>
The fund's history shows that buying a drop has often paid off, but not without some serious bumps along the way.
RYLD pays a headline yield that looks generous until you compare it to what the same small-cap stocks returned without the options overlay. The gap between those two numbers has a name, and it never appears on the factsheet as a fee.
The Russell 2000 is up 20% this year, but blindly owning the benchmark means owning hundreds of unprofitable companies with shaky balance sheets. There is a more selective small-cap ETF built to filter out the junk while keeping the upside.
