Small Caps on a Down Day with Top 20 Odds - Sep 30, 2022 Performance Breakdown (Russell 2000)

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Small Caps on a Down Day with Top 20 Odds - Performance Breakdown (Russell 2000)

The following showcases potential results from The Top 20 Odds (Russell 2000) basket for September 30, 2022. This is using the v2.0 algorithm, which selects 20 longs from the Russell 2000 index. Daily wrap-ups such as these are  ow included with Top Odds subscriptions (S&P 500, Russell 2000)! Try it out for yourself here.

Below is an annotated 5-minute chart for IWM on September 30 for overall context of market moves.


IWM gave up some premarket gains to open down -0.21%, which is a very mild discount for a volatile instrument. It managed to get above the Previous Close, then a rally up to previous day’s high and broke through that to trade into the gap from Sept 28 to 29. At 11:30am ET, it turned over and finally broke down to tag the Previous Close just before 3pm ET. IWM was down -0.52% from Open to Close, and our "Stocks Only" Basket finished strong unhedged at +1.13%. A rare day where hedged made more money than naked.

Here are some of the various baskets that could have been formed for the day:



One trader asked today why Small Caps perform sometimes so well on a day where Large Caps are doing poorly. Often there is an arbitrage by significant players where they short the mature fully valued large and mega cap stocks and buy the small caps that have more potential for growth and upside moves. IWM did not break the 5-day low like DIA, SPY and QQQ did, so was showing relative strength.

Here's how the rest of the stocks in the basket did for the day:



The key to Basket Trading is Relative Performance. Simply put, you want your Longs to Outperform your Shorts (or hedges, such as IWM in this case) regardless of market direction. Even if the day took a turn for the individual stocks and the underperformed, having a hedge on such as IWM or TWM can help reduce naked exposure to broad market moves. Adding more symbols to your basket also helps to reduce the risk of getting overrun due to one symbol moving against traders (such as THC).

 Why not traded hedged, overcome the noise and whipsaw, and be more consistent with lower variance?  Check out the Top 10 Odds here



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