Weekend Review – Russell 2000 Options and Volatility – 6/27 – 7/1

Small cap stocks, in the form of the Russell 2000 Index (RUT) were up 2.51% last week, which was a nice rebound from the previous week’s reaction to Brexit vote. However, large cap stocks rebounded by a wider margin with the Russell 1000 (RUI) gaining 3.10%. Both benchmark indexes are higher for 2016 but RUI is had a 1.01% lead on RUT (2.85% vs. 1.84%).

RUI RUT

VIX experienced the biggest weekly drop on record losing just over 42%. The chart below is just as dramatic, but in the other direction. The RVX / VIX premium rebounded from just over 5% to 34% as the CBOE Russell 2000 Volatility Index didn’t drop nearly as much as VIX.

RVX - VIX

Late Friday, with the Russell 2000 around 1156 trader came in with a pretty interesting trading using the weekly options that expire this coming Friday July 8th. They sold the RUT Jul 8th 1175 Call for 1.98 and purchased the RUT July 8th 1180 Call for 1.33 and a net credit of 0.65. If the Russell 2000 manages to rally through 1180 the trade would result in a loss of 4.35.

RUT PO