• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Help!? I'm Sending Out an E.T.F.

As the markets sink, I've got an options plan for this index exchange-traded fund.
By BRET JENSEN
Jun 12, 2022 | 07:30 AM EDT
Stocks quotes in this article: IWM

It was a very tough Thursday and Friday for investors, and I've got an index exchange-traded fund play that might help.

I'll get to the strategy down below, but first, let's assess the damage.

Inflation data sent equities in a tailwind causing the Nasdaq to drop more than 6% during the final two days of trading. The S&P 500 was not far behind. The odds of a three-quarter point hike when the Federal Reserve meets next Wednesday feels like a coin flip now and the five-year and 30-year Treasury yield inverted late in the week. Consumer sentiment is at the lowest levels ever measured, despite a 3.6% jobless rate. It is hard to blame consumers for being skittish with inflation at its highest mark since 1981 and the average consumer losing net buying power month after month.

Investors have to be feeling snake bit at this point. Outside of the energy and some other commodity driven sectors, just about every part of the market has been whacked. Bonds have offered little solace in this broad-based pullback, too. Recession within the next 12 months seems a more and more probable scenario. Those of sitting on a good deal of cash have to weigh the benefits of hunkering down and missing opportunities now that the market is full of much lower entry points than at the start of the year.

What can we do?

Simple covered call strategies really help to bridge this challenge. They provide downside protection, which are much needed in this market. They can also give one the extra dose of confidence to get off the sideline to act upon opportunities instead of waiting for an exact bottom, which few ever do successfully, and none do consistently. The spike of volatility across the market has increased option premiums, so this strategy now can deliver additional potential returns and risk mitigation than in a lower beta environment.

At the moment, I like using index exchange-traded funds more than I typically do. They eliminate company specific risk and my endless ruminations trying to project how much inflation will impact a particular firms profit margins or how they would weather a recession. Options on index ETFs are also very liquid, which means orders get executed quickly and are very easy to "roll," if markets continue to go down.

Late Friday as markets were tanking, I added some more exposure to my slowly growing holdings of iShares Russell 2000 ETF (IWM) , which tracks the small cap benchmark. I will be the first to admit this is not a particularly sexy trade, but does provide a nice discount to buy a broad swath of the market. The ETF is already down approximately 20% for the year as it is.

Option Strategy:

This is how one can execute a covered call position in IWM. Using the January $180 calls, fashion a covered call order with a net debit in the $163.30 to $163.50 range (net stock price - option premium). Options are more than liquid and the order should fill quickly. This strategy provides downside protection of nearly 10% and potential upside in the low teens over just over seven months even if the index does little. This trade is very easy to roll if markets are still performing badly late in the year as well.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jensen was long IWM.

TAGS: ETFs | Investing | Small Cap | Stocks

More from Stocks

It's Big-Cap AI Stocks Vs. Everything Else

James "Rev Shark" DePorre
May 30, 2023 4:35 PM EDT

The biggest problem now is that the big-cap names are not acting as leaders.

Beyond Meat and Peloton: Zombie Stocks Can Turn Portfolios Into the Walking Dead

Brad Ginesin
May 30, 2023 3:30 PM EDT

Don't confuse a stock revival masquerading as a living, breathing business revival.

In Case You Missed It: Apple Just Hit a New 52-Week High

Bruce Kamich
May 30, 2023 2:45 PM EDT

Let's not ignore the strength in AAPL.

Bristol-Myers Squibb Breaks a Key Support Area: What's Next?

Bruce Kamich
May 30, 2023 12:50 PM EDT

Here's what the charts and indicators say.

Here's the Truth About Oil No One Saw, as OPEC+ Takes the Stage

Maleeha Bengali
May 30, 2023 12:32 PM EDT

Let's look at what many observers failed to notice about oil, and what could happen when the oil exporting nations -- including Russia -- meet on June 4.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:48 AM EDT CHRIS VERSACE

    Latest AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • 03:25 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Don't Just Sit There and 'Hope' for Your Stocks, M...
  • 07:32 AM EDT BOB LANG

    Webinar Thursday After the Close: Option Spread Trading

    Thursday, my good friend and colleague Sam DeMarco...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login