Weekend Review – Russell 2000 Options and Volatility – 9/5 – 9/9

Stocks across the board had a tough week (or Friday) with both the Russell 2000 (RUT) and Russell 1000 (RUI) losing value.  Friday was especially tough on RUT with the small cap benchmark losing 3.3% while RUI was down 2.5%.  For the week RUT lost 2.8% while RUI was down 2.5% for the first ‘win’ by the large cap index in a few weeks.  For the year RUT is still in the lead, up 7.34% while RUI is now up 4.24% for 2016.

RUT RUI

In the volatility space the gap between RVX and VIX narrowed with the rally in volatility that accompanied the stock market drop Friday.  The ration dropped to about 20% based on the rise in both indexes.

RVX VIX

Finally, I went searching for an out of the money put spread seller from Friday, but came up short.  I guess those guys are in a wait in see mode before stepping back into the market.  While looking at block RUT trades from Friday I did find a great one from early in the day.  When RUT was at 1237, someone bought the RUT Oct 14th 1260 Puts for 37.54 and sold the RUT Oct 14th 1240 Puts for 27.54 and a net cost of 10.00.  This is the risk for the trade as well with a break even at 1250.  Note on the payoff diagram below I show where RUT was when the trade was initiated and the closing level for RUT.  Very nice timing by at least one trade, now they just need to hope RUT stays under pressure for the next few weeks.

RUT PO