The Week in Russell 2000 Trading – 8/24 – 8/28

Once a month I leave CBOE for a couple of days and turn into a student attending a residency at Oklahoma State.  I do my very best to leave the markets behind and focus on my studies.  I did a pretty good job of tuning out what was going on toward the end of the week.  This resulted in me being surprised that the Russell 1000 (RUI) gained almost 1% on a week over week basis with the Russell 2000 rising just over a half of a percent.  Both are lower on the year, with large cap stocks slightly outperforming when using RUI and RUT and large cap and small cap proxies.

RUI RUT YTD

We experienced a ‘first’ this past week in the volatility oriented markets.   A common method of comparing small cap versus large cap risk perceptions is on display with the diagram below.  Those of us that spend a good amount of time focusing on volatility like to compare the CBOE Russell 2000 Volatility Index (RVX) level to VIX.  Until this past week RVX had always closed at a premium to VIX, but that ten plus year streak was broken on Monday, Tuesday, and Wednesday.

RVX VIX End of Week

I came across two bull put spreads in the RUT arena from Friday that are targeting the September standard expiration series (AM settled on September 18th).  The first one was executed pretty early on Friday when RUT was at 1151.51.  A trader came in and sold the RUT Sep 18th 1150 Puts for 27.10 and purchased the RUT Sep 18th 1120 Puts for 17.30 and a net credit of 9.80.  RUT settlement over 1150 results in a profit equal to the credit of 9.80 while the worst case scenario would involve RUT settlement at or below 1120 and a net loss of 20.20.

RUT PO 2

The next bull put spread is more like a neutral to bull put spread.  Toward the end of the day there was a seller of the RUT Sep 18th 1110 Puts for a credit of 12.75 who purchased the RUT Sep 18th 1100 Puts for 10.85 and a net trade credit of 1.90.  This trade occurred as the RUT had moved to higher levels and was quoted at 1158.61.  As seen below this trade has quite a cushion to the downside and as long as RUT is over 1110 at settlement the credit turns into a profit.  A big move to the downside, placing RUT below 1100 would result in a loss of 8.10.

RUT PO 1

  • Jason Greenhurst

    Since I don’t normally study RVX, this was edifying, to say the least. Keep up the good work. A lot of data in one place.

  • James Hafler

    I usually don’t consider the RUT and RVX when trading the Vix. I think I am going to start watching more carefully. Thanks as always for the informative article.