Small cap stocks still lag, but the Russell 2000 (RUT) made quite a run over the past couple of weeks and is now up 9.85% on the year compared to 12.5% for the Russell 1000 (RUI).  Friday was the end of the third quarter and with the late quarter move RUT ended up 5.33% higher while RUI gained 3.97%. 

RUT RUI 09292017

The relationship between the CBOE Russell 2000 Volatility Index (RVX) and VIX visited 2017 lows over the past couple of weeks as small cap stocks outperformed large caps.  Despite the run in RUT, the relative fear index has moved up which could indicate the RUT run is due for a pause.

VIX RVX 09292017

 

RUT took off to the upside on Wednesday and one trader was probably pretty happy about the end of quarter small cap rally.  Mid-morning on Tuesday, with RUT around 1457 someone bought 20 of the RUT Sep 29th 1465 Calls for 2.37 and sold 20 RUT Sep 29th 1470 Calls for 1.23 resulting in a net cost of 1.14.  The payout based on holding through the close on Friday appears below. 

RUT PO 09292017

With RUT a bit over 1490 this trade, again if held to expiration, resulted in a maximum profit of 3.86.  Also, if held to expiration the profit was realized through cash settlement which is a bonus for index option traders who don’t have to worry about the delivery of shares when positions are in the money at expiration.