Small caps in the form of the Russell 2000 (RUT) were up slightly last week while the Russell 1000 (RUI) was down slightly. Friday marked the end of the second quarter. Both RUT and RUI were higher for the second quarter with RUT gaining 2.12% while the large cap focused RUI was 2.55% higher. We all know RUT had stellar performance from election day to the end of 2016 on both and absolute and relative basis when compared to RUI. However, RUT has consistently underperformed RUI for most of 2017.
The CBOE Russell 2000 Volatility Index (RVX) premium to VIX has been mostly at the high end of the long-term range in 2017. However, over the past couple of weeks RVX has been at relatively low levels when compared to VIX. This may be a precursor to small caps playing a bit of catch up during the second half.
At least one trader of moderate size feels like small caps will have a very positive 3rd quarter. With about an hour left in the trading day someone came into the RUT post by the escalator on the CBOE floor and bought 50 of the RUT Sep 29th 1550 Calls for 2.20. With RUT finishing the day at 1415.36 this trader needs about a 9.6% move out of RUT to the upside to hit break-even on this trade.