Small cap stocks were lower on Friday and the Russell 2000 didn’t get much love as the Nasdaq-100 and S&P 500 put up all-time highs last week. Despite RUT lagging a little there were a couple of Friday trades that at minimum expect the Russell 2000 to stay around current levels over the next few weeks or months.
First, there was a trade that seems to expect a neutral to bullish for small cap stocks over the next few months. Early in the day, someone came into the Russell 2000 pit and sold 1500 RUT Jul 1250 Puts at 33.23 and then purchased 1500 RUT 1150 Puts for 11.23. The net result is a credit of 21.80 which is equal to the maximum potential profit at expiration. That is as long as the Russell 2000 closes over 1250. A partial profit may be realized if RUT is over 1228.20 and losses are capped at 78.80 if the Russell 2000 settlement for the July 17th contracts is below 1150. In order to realize this maximum loss RUT would need to go down by just over 10%.
Another interesting trade from Friday had a more neutral outlook in the form of the very popular Iron Condor. A trader sold both the RUT May 29th 1160 Put for 2.68 and RUT May 29th 1320 Call for 2.26. They the completed the spread by purchasing the RUT May 29th 1150 Put for 2.36 and the RUT May 29th 1330 Call for 1.33. The net result was a credit of 1.45 with a potential risk of 8.55. These contracts expire in five week so as long as the Russell 2000 does not gain more than 4% or drop about 8.5% the options will expire out of the money and the 1.45 credit turn into a profit.