Small cap stocks narrowed the performance gap with large cap stocks last week. The Russell 2000 (RUT – 1243.95) rose 0.73% which places 2015’s price performance at up 3.26% while the Russell 1000 (RUI – 1184.73) gained 0.37%. Large cap stock performance is still slightly better than year to date small cap performance as the Russell 1000 is up 3.53% for 2015. The chart below adjusts both indexes to start the year at 100 for an easy visual comparison.
The CBOE Russell 2000 Volatility Index (RVX – 15.32) dropped significantly last week losing 12.6% while the CBOE Volatility Index (VIX – 12.38) was only down 3.7%. Many market observers (including me) consider it useful to compare RVX and VIX as a gauge of small cap versus large cap risk perceptions. A common method of comparison is to focus on the percent premium of RVX relative to VIX. RVX is consistently at a premium to VIX so this comparison method seems to make sense. The chart below shows that this premium dropped significantly last week and is near the middle of the range for 2015.
Finally, on the trading front, I again came across an out of the money RUT option trade, but this time it appears someone purchased out of the money RUT Puts. Both Thursday and Friday there was a buyer of RUT Jun 19th 1100 Puts for 1.45. Either someone is looking to get protection against a quick drop in small cap stocks over the next few weeks or they are speculating on a correction. Either way, the payoff diagram below shows where RUT finished Friday along with highlighting the break-even point at expiration for this trade which involves a drop of almost 12%.