The Russell 2000 Index (RUT) has been benefiting from sector rotation. Investor’s have been rotating into small cap stocks. You can see the index has increased 10.32% in the last 5 days. You can also see that implied volatility has been increasing as demand for options has increased.

From an options trader’s perspective, the increasing volatility expectations and the fact that RUT is pulling back just a bit in pre-open trading creates a high-probability zero-days-to-expiration (0DTE) opportunity.

This Volatility Term Structure for RUT shows us the implied volatility of the at-the-money options for  today’s expiration have the highest volatility expectations. To learn more about Volatility Term Structure, click here. With the index pulling back in pre-open trading, those expectations may be increasing even higher. This presents a 0DTE opportunity where we can enter a trade on the same day the options expire, if we are able to get filled at the right price. 

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This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of RUT’s price over the past year. You can see that the actual behavior (the blue histogram) shows us that RUT did not make big moves as often as the modeled options prices currently expect. This graph tells us that options expiring today are ridiculously expensive if the index continues to behave the way it did over this last year.

RUT has been exploding to the upside as investors have been rotating into small cap stocks. Volatility expectations have increased as demand for options on the index have increased. The index is down a bit in pre-open trading, and that sets us up for a high-probability 0DTE trade that has the potential to get a  11% return in single day.

To get the details on today’s trades, be sure to read today’s ODDS Online Daily Option Trade Idea.

To access Odds Online Daily and be able to see any stock you are tracking in this software, click here.

Thank you,

Don Fishback