Last week, especially the end of the week was an ugly one for the equity markets. The big loser among the S&P 500, NASDAQ-100, and Russell 2000 was the Russell 2000 which lost about 1% more than the other two broad based market indexes with associated listed volatility markets. Despite the underlying market being down more than the S&P 500 and NASDAQ-100, implied volatility on RUT options actually did not react as much to the upside as VXN or VIX. I’ve been keeping a close eye on the spread between VXN and VIX and the spread between RVX and VIX as there has been more risk priced into RUT and NDX options recently than SPX options. The chart below shows the daily closing prices of VIX subtracted from RVX (Red Line) and VXN (Blue Line) from May 2013 through this week.
Note that both spreads are bordering on recent highs. It appears option players are more concerned about tech stocks and domestic stocks than the multinational companies that make up a good portion of the S&P 500. Both the VXN and RVX curves went into pretty defined backwardation last week (charts are below) which further displays concerns about the performance of the NDX and RVX over the next few months.