The Week in Small Caps – 3/9 – 3/13

Small cap stocks continue to shine relative to large caps. The Russell 2000 was up 1.2% last week while the S&P 500 actually lost value. The perceived risk for investing in large cap stocks rose last week with VIX climbing over 5%. It was a different story for the CBOE Russell 2000 Volatility Index (RVX) which was higher, but only by 0.62%. Also, the front three month futures contracts actually lost value last week. The wide spread that was common between RVX and VIX for most of 2014 has not returned this year and if anything continues to narrow.

RVX Curve

On Thursday I came across an out of the money call spread using RUT options. That blog can be found at the link below –

http://www.cboeoptionshub.com/2015/03/12/block-trade-analysis-otm-russell-2000-bear-call-spread/

On Friday someone took an opposite stand, but in a more aggressive way. There was an early morning block trade of almost 3,000 RUT Apr 1140 Puts at 4.30. I did not see a similar purchase so I think this may be a naked short position which, if a true correction kicks in, could turn into a disastrous trade. For things to go right April settlement for the Russell 2000 needs to come in above 1140 which is about 92 points lower than Friday’s close. In performance terms that means RUT needs to lose just over 8%.

RUT PO