Hey guys, it’s Friday which means it’s time for my trade of the week! As usual I am crushing it in the options market this week and have yet another awesome trade to reveal to you and show you how I have already made around 8 percent this month and counting on a single options contract. The spread itself is a credit spread and has an amazing profit potential of around 20 percent at expiration for the buying power utilized. It’s a bear call spread on the IWM, which is the Russell 2000 Index Fund. Let’s take a look:

Just as was indicated a few weeks prior, all the major equity indexes have taken a dive as of the last couple weeks. The reason for this occurring can be attributed to a few simple causes:

1. A bull rally had formed at the tail end of the 2008 stock market crash last March. This bull rally was a market correction to the crash and represented an entry point back into the market for thousands of investors. Taking advantage of the bull rally lead the market all the way into the holiday season where consumer spending improved the earnings reports and financial stability of thousands of large cap companies, despite the economy bordering on 10 percent unemployment. However, this momentum was easily stalled at the end of the rising tide, and the market became neutral in January due to a lack of momentum. This inevitably lead it to a recent downswing which we are now observing. The recovery was weak and partial from the start, so a significant market correction in the equity markets was no surprise at all.

2. Federal Reserve lending policies are under attack from multiple sides, leading to significant investor fear and uncertainty regarding the regulating of interest rates. As of writing this blog post, we are at 86 percent of our gross domestic product in national debt, a startling and potentially bankrupting flaw in our economy. The Fed has been under attack by China who threatens to tighten lending policies if our economic status doesn’t improve. Obviously since 7.5 trillion dollars of this debt was added in the past year and a half as a result of bailouts and stimulus, there is reason to be afraid and wonder if we will not be witnessing a double dip recession in the next couple of months.

So basically I played the stock market correction that was long overdue with a bear call spread on the Russell 2000 Index fund at 65 and 66 and it has dropped like a rock ever since showing no impending signs of correction against the current downward trend. I’ll be sitting on this one hopefully all the way until expiration and realize myself a very healthy profit!