A quick recap of the previous indices and ETFs used by options traders include:  the QQQQ, the SPY, and the VIX.  Today we’ll give you some small-cap exposure with the iShares Russell 2000 ETF known as the IWM.

What is the IWM:  The IWM attempts to track the performance of the 2000 smallest companies found on the three major exchanges, the NYSE, the AMEX, and the NASDAQ.

Why use the IWM:  If you’re interested in gaining small-cap exposure, the IWM is the tool for you!  If your outlook is bright with small-cap companies, using options may be a cost effective way to gain exposure through the IWM.  A caveat of the IWM is that each year around July 1^st, the Russell 2000 revises its members.  Any companies that have grown are bumped into the Russell 1000 (the largest 1000 companies on the three major exchanges).  Companies that have decreased in size from the Russell 1000 may be reintroduced into the Russell 2000.  Keep an eye out each year for any changes.  Some of your favorite stocks may have grown up and moved on to better pastures.

IWM Options Structure:  The IWM trades similarly to the SPY and QQQQ with $1 strike prices and $0.01 bid/ask spreads.  Liquidity, with the other largely traded indices and ETFs, is almost a non-issue.

The IWM is great for small-cap exposure for your portfolio.  In a growing economy I could see the IWM performing well or perhaps outperforming some of the other major indices.  If you’re looking for a more risky position, take a look at some options contracts on the IWM.  You won’t be disappointed!