The Week in Russell 2000 Trading – 7/27 – 7/31

I was on the road for CBOE and on the other side of the world recently so I missed some of the market action of late. I knew the Russell 2000 (RUT) was lagging, but was honestly surprised to see that the small cap dominated RUT performance for 2015 is basically in line with large cap stocks which is represented by the Russell 1000 (RUI) below.  My impression was that China and Greece (storm that has passed – for the moment) were dominating the news.  However, the relative performance of RUT to RUI says the domestic business environment may be something to be concerned with over the balance of this year.

RUT RUI

When I put these charts together each weekend I start with the RUT – RUI price chart and then move on to the volatility comparison chart that shows up below. After seeing the outperformance of RUI relative to RUT I am not surprised to see the premium of RVX relative to VIX at elevated levels. Everyone is a little on edge when we start to look beyond Labor Day each year, regardless of the market environment. This chart says the concern appears to be a little more about what may happen inside the U.S. versus the rest of the world.

RVX RUT

Late Friday with the Russell 2000 hovering around 1237.50 a relatively large seller of an out of the money call spread showed up at the RUT post. They sold a few thousand of the RUT Aug 21st 1280 Calls at 1.21 and purchased RUT Aug 21st 1290 Calls for 0.71 for a net credit of 0.50. A move to 1280.00 from the late Friday price of 1237.50 involves a climb of 3.4%.   Often these out of the money spreads in RUT options have strike prices outside of the recent trading range which isn’t the case here. RUT has been as high as 1296 this year which would place the index at a price where the maximum potential loss of 9.50 would be realized at expiration.

RUT PO