The Week in Russell 2000 Trading – 7/6 – 7/10

The week was quite a roller coaster ride for both the large and small cap segments of the equity market. As the week came to an end the Russell 2000 (RUT) was up 0.30% while the Russell 1000 (RUI) lost 0.03%.  As of Friday RUT is 3.93% higher for the year outperforming RUI by 2.61%.


The RVX – VIX relationship tested recent lows on Thursday as it is prone to do when global risk is the big market concern.   On Friday, RUT did outperform RUI a bit (up 1.4% versus 1.2%) but that was enough to see the RVX – VIX premium rise from 8.8% to 15.3% which is closer to the average for 2015 of 19.95%.


Wednesday was a big day in the equity markets and RUT finished that day down 1.5% to close near 1228. Mid-day on Wednesday, as the financial world was coming to an end (for the moment) and RUT was around 1233, there was a fairly large seller of an out of the money put spread. Over the course of about an hour and starting when RUT was at 1233 a trader sold well over 30,000 of the RUT 1165 / 1185 Jul 10th Put Spreads for an average of about 0.10.

RUT PO Fixed


Remember Wednesday was July 8th and the July 10th RUT options are AM settled contracts. So this trade had a trading day and a half of risk that the market would continue to fall plus overnight risk from July 9th to July 10th. Taking this a step further, RUT settlement on the open on July 10th needed to be about 3.9% lower and the worst case scenario plays out with a drop of 5.5% or more which would result in a loss of 19.90.