Weekly Review – Russell 2000 Index and Volatility 1/11 – 1/15

The Chicago Bears are doing the same thing the rest of us did this weekend, watching the playoffs from home.  However, the stock market bears have been dominate in 2016.  Russell 2000 (RUT) history goes back to 1987 so there is not a lot to work with, but the first ten days of 2016 are the worst first ten days on record for RUT.  The table below shows the first ten days for every year when RUT started off in the red followed by what the small cap oriented index did for the balance of each year.  I think the best way to read the numbers is that all is not lost for the current year since the follow on results have been mixed.

Russell 2000 - First 10 Days

Something that was new to the markets last year involved the relationship between the CBOE Volatility Index (VIX) and the CBOE Russell 2000 Volatility Index (RVX).  In the distant past and in times of panic VIX often moved close to parity with RVX, but had only once surpassed RVX.  The chart below depicts the ratio of RVX divided by VIX and when the burgundy line is lower than the 0 line this indicates VIX closed higher than RVX.  Despite a rotten beginning to 2016 RVX has maintained the somewhat normal premium to VIX.

RVX VIX

Friday’s market action brought out a trader that wants long exposure to volatility based on expectations for small cap stocks.  Over the course of a couple of hours, with RVX climbing from about 30.50 to almost 32.00 a trader came into the RVX Option market and purchased 300 of the RVX Feb 40 Calls for an average of about 0.52.  I found the 40.00 strike pretty interesting since RVX did not manage to close over this price, even back in August last year.  Also, note on the diagram below that RVX did finish under 30.00 on Friday.

RVX PO

  • William Keith Baxter

    Interesting. Thank you.