Small caps did not have a good week, despite the rebound in the equity markets after Wednesday’s swoon. The Russell 2000 (RUT) was down over 1% last week actually dipping into negative territory for 2017 before recovering at the end of the week. Large cap stocks as represented by the Russell 1000 (RUI) held up better than small caps with RUI down only 0.40% for the week.
When volatility spikes the relative move is usually greater for VIX that the CBOE Russell 2000 Volatility Index (RVX) and that was the case last week mid-week. As large cap stocks did better than small cap stocks, the RVX / VIX ratio returned to higher levels to finish the week.
Wednesday afternoon, as the world was a bit panicked, one trader stepped up and took advantage of elevated RUT implied volatility and the dip in small cap stocks. With RUT around 1360 someone came in and sold the RUT Jun 1170 Puts for prices between 1.23 and 1.30 and purchased the RUT 1150 Puts for prices between 1.03 and 1.07. The net result was a little over 1000 RUT Jun 1150 / 1170 Put spreads sold for about 0.20. The dollar risk / reward is pretty hefty at a 0.20 gain versus a 19.80 potential loss. However, things really have to go wrong between now and June 21st, specially a drop of 14% for RUT.