Weekend Review – Russell 2000 Options and Volatility – 9/26 – 9/30

For the first time in a while the Russell 1000 was higher while the Russell 2000 lost value last week.  The numbers were slight with RUI up 0.15% and RUT down 0.26%.  For the year RUT still maintains a nice lead with three months to go in 2016.

rut-rui-performance

The CBOE Russell 2000 Volatility Index maintains a high spread relative to VIX continuing to hover around that 40% level.

rvx-vix

 

On Monday the Russell 2000 came under a little pressure and one trader decided to take advantage of this by selling a far out of the money RUT Put spread.  With RUT near 1245 the trader sold 162 RUT Oct 21st 1140 Puts at 2.79 and then bought 162 RUT Oct 21st 1135 Puts for 2.59 and a net credit of 0.20.  The payoff diagram below shows how this trade will work out at expiration in three weeks.

rut-po

Note the risk is 4.80 for a reward of 0.20, but for this trade to not work out RUT needs to lose about 105 points or about 8.5% in the next three weeks.