Large cap stocks continue to dominate small caps this past week as the Russell 1000 gained 0.20% while the Russell 2000 was down 0.06%. I guess dominate is a pretty strong word when referring to last week, but for the year RUI is up 15.20% while RUT is up 11.14%, the term works better when comparing 2017 year to date performance.
VIX gave up some ground on a week over week basis while the Russell 2000 Volatility Index (RVX) was higher. The result is the RVX / VIX relationship up to just under 50% at elevated levels which has been the norm for 2017.
Last Friday (the 20th for clarity sake) there was a trade anticipating that RUT would stay in a range this past week. With RUT basically unchanged on a week over week basis I figured this trade was worth sharing in this space. With RUT near 1509 there was a seller of the RUT Oct 27th 1490 Puts at 2.19 who also sold the RUT Oct 27th 1535 Calls for 0.93. This trader also purchased the RUT Oct 27th 1470 Puts at 0.86 and RUT Oct 27th 1555 Calls for 0.37. The result of this is a RUT Oct 27th 1470 – 1490 – 1535 – 1555 Iron Condor at a net credit of 1.89. The dollar risk / rewards is skewed to the downside with a potential loss of 18.11 if RUT finished the week below 1470 or above 1555.
RUT finished the week safely within what I refer to as the ‘sweet spot’ for this iron condor. However, to channel my favorite secret agent, Sterling Archer, this trade was in the Danger Zone on Wednesday as the Russell 2000 was under pressure putting in a low of 1482.53.