Small caps fell farther behind last week as the Russell 2000 (RUT) was down 1.37% while the Russell 1000 (RUI) was down only 0.24%. For the year RUT is now up 8.71% while RUI has gained a very respectable 15.21%.
This time last week the CBOE Russell 2000 Volatility Index (RVX) premium relative to VIX was at 2017 highs. Despite the fall off in RUT compared to RUI, the ratio experienced a pretty dramatic drop. We are going to attribute that to the rise in VIX more than an increase in concerns about small cap stocks.
Normally I discuss a RUT option trade in this space, but a sell of 200 RVX Dec 20th 23 Calls at 0.50 from Thursday was pointed out to me this past week. When I checked the line I saw the open interest was at 400 contracts so I did a little digging and found that back on October 25th there was also a seller for 200 of the same Dec 20th 23 Calls for 0.65. I’m going to go out on a limb and assume this position is held by the same entity. If held the December 20th AM settlement the payout for the combined position appears below.
One thing to note, RVX has not ventured above 23 since November 4th of last year and the last RVX contract settlement over this level was in February of 2016. However, this settlement price was 29.61 which would be pretty painful for this short call seller.