To The Moon

I learned a strategy which are a good bet on $iShares Russell 2000 ETF(IWM)$ before the crucial August CPI (Consumer Price Index) data released.

• Buy 10 call options with a strike price of $242 and expiring on September 15, 2025 (Buy 10 Sep15'25 242 CALL).

• Simultaneously sell a put option with a strike price of $242 and expiring on September 15, 2025 (Sell 1 Sep 15'25 242 PUT).

• And buy a put option with a strike price of $232 and expiring on September 15, 2025 (Buy 1 Sep 15'25 232 PUT).

This strategy aims to anticipate the impact of major economic data, locking in risk while minimizing the cost of a trading opportunity with unlimited returns.

Note: The cost of this strategy is the price of buying 10 calls - the price of selling one put + the price of buying a low-priced put.

Position establishment cost: The entire strategy is net investment, with a cost of $0.18 per share.

Simulation results:

Outlook: This position expires on September 15, 2025. The release of CPI data will have a decisive impact on the short-term trend of IWM and directly affect the success or failure of this strategy.

1. Forward-Looking Trading Logic:

The overall CPI is declining, and the Fed's easing window is essentially locked in September, which is positive for rate cuts and small-cap stocks.

• The US CPI for July 2025 was 2.7% year-on-year (2.8% expected, 2.7% prior); the core CPI was 3.1% year-on-year (3.0% expected, 2.9% prior), showing a divergence between overall CPI below expectations and core CPI slightly exceeding expectations.

• Energy prices fell 1.1% month-on-month, the main drag on the lower-than-expected overall CPI; however, "super core inflation" (core services excluding housing) rebounded month-on-month, indicating that service inflation remains sticky.

• The market remains focused on the combination of a decline in the overall CPI and a weakening job market. The probability of a 25 basis point rate cut in September rose to 94.9%, and short-term interest rates fell rapidly.

• Powell's dovish signals at Jackson Hole, coupled with the weak August non-farm payroll data, have made the market fully priced in a September rate cut. Finance Minister Bensont publicly stated that a 50 basis point rate cut in September should be considered, anchoring policy expectations on "easing" rather than "whether it will be easing."

Therefore, as long as CPI does not significantly exceed expectations, the rate cut trade is difficult to disprove, and the logic that small-cap value stocks will benefit continues to hold. (In the 1-3 months before each Fed rate cut, small-cap stocks have outperformed large-cap stocks by an average of 4-6 percentage points (samples from 2019, 2015, and 2007).

2. Strategy Basics: What is the "Reversal Ratio" portfolio?

This is an advanced and customized portfolio strategy. It's not a standard textbook strategy, but rather a flexible one constructed based on specific market expectations. It's ideal for those looking to buy at the bottom and protect their positions against declines, including those looking to invest in volatile stocks during earnings season.

Strategy Structure: It consists of two core components:

• A large long call position (Long Call).

• A bull put credit spread (Bull Put Spread).

Core Logic: The primary logic is to use the premiums collected from the credit spread to "subsidize" the cost of purchasing a large number of call options. Traders use this to express their extremely bullish view of the market outlook, hoping that the underlying asset price will rise significantly, resulting in a significant return on the call options.

Maximum Profit Scenario: If IWM's stock price is significantly above the call option's strike price ($242) at expiration, the profit potential is theoretically unlimited.

Suitable Scenarios:

Strong bullish outlook on the underlying asset (bottom-fishing, downside protection).

Expecting a sharp price surge following a catalyst (e.g., CPI data, earnings report).

Key Risks:

Maximum Loss: The strategy incurs its maximum loss if the stock price falls below the lower strike price ($232) at expiration. At this point, the call option becomes worthless, and the bull put spread incurs a $1,000 loss ((242 - 232) * 100). Therefore, the maximum risk is locked in upfront.

Price Stagnation: If the stock price doesn't rise significantly before expiration, or even declines slightly, the loss of time value (theta decay) could erode the position's value, leading to losses.

In summary, this IWM trade is a high-conviction, high-leverage event-driven trade. A trade will be considered a success if IWM rises 2.5% and stabilizes above $242 by September 15th. This strategy clearly defines an asymmetric risk structure with limited maximum loss and unlimited potential returns, and is a classic example of the precise use of options tools to amplify specific market views.