The Week in Russell 2000 Trading – 6/29 – 7/2

During all the market excitement on Monday last week the Russell 2000 dropped 2.6% while the large cap focused Russell 1000 lost 2.1%. The real difference between small cap and large cap stocks occurred after the dust settled from Monday. The Russell 1000 was able to gain 0.9% after to finish the week down 1.2% while the Russell 2000 did a whole lot of nothing and finished the week down 2.5%. This is the first time in a while that large cap stocks have dominated and is a bit surprising since the news focus was all about Greece and the global economy last week.

RUT RUIThe RVX premium to VIX dropped to the lowest level since January of this year. However, as large cap stocks rebounded and small cap stocks did not the RVX / VIX premium moved higher over the balance of the week.

RVX VIXLate Thursday there was an Iron Condor placed using very far out of the money options in both directions. On the put side the RUT Jul 17th 1140 Put was sold for 1.40 and the 1130 Put was purchased for 1.08. To the upside the spread sold the RUT Jul 17th 1320 Call for 0.30 and then completed the trade through purchasing the RUT 1330 Calls at 0.17. Excluding commission this trade results in a net credit of 0.45 and a payoff two weeks later that looks like the diagram below.

RUT PO FixedBased on the Russell 2000 close on Thursday of 1248.26 this trade is safe as long as RUT is not more than 5.7% higher or 9.4% lower, staying in that range will result in all option expiring out of the money and this trader pocking 0.45 per spread. If the unexpected (in the trader’s mind) happens and we get a big rally or an even bigger drop in the equity markets the maximum potential loss is 9.55 per spread.