The week was quite a roller coaster ride for both the large and small cap segments of the equity market. As the week came to an end the Russell 2000 (RUT) was up 0.30% while the Russell 1000 (RUI) lost 0.03%. As of Friday RUT is 3.93% higher for the year outperforming RUI by 2.61%.
The RVX – VIX relationship tested recent lows on Thursday as it is prone to do when global risk is the big market concern. On Friday, RUT did outperform RUI a bit (up 1.4% versus 1.2%) but that was enough to see the RVX – VIX premium rise from 8.8% to 15.3% which is closer to the average for 2015 of 19.95%.
Wednesday was a big day in the equity markets and RUT finished that day down 1.5% to close near 1228. Mid-day on Wednesday, as the financial world was coming to an end (for the moment) and RUT was around 1233, there was a fairly large seller of an out of the money put spread. Over the course of about an hour and starting when RUT was at 1233 a trader sold well over 30,000 of the RUT 1165 / 1185 Jul 10th Put Spreads for an average of about 0.10.
Remember Wednesday was July 8th and the July 10th RUT options are AM settled contracts. So this trade had a trading day and a half of risk that the market would continue to fall plus overnight risk from July 9th to July 10th. Taking this a step further, RUT settlement on the open on July 10th needed to be about 3.9% lower and the worst case scenario plays out with a drop of 5.5% or more which would result in a loss of 19.90.