Both large and small cap stocks had another good week last week with the Russell 1000 (RUI) gaining 0.85% while the Russell 2000 (RUT) was up by 0.36%.  For the year RUI is up almost 5% while RUT is up just a little over 4%.

RUI RUT 01192018

We are starting to see the Cboe Russell 2000 Volatility Index (RVX) premium relative to VIX move to lower levels.  This ratio was pretty high relative to history for most of 2017 which was understandable since small caps consistently underperformed last year.

RVX VIX 01192018

Late Wednesday with RUT around 1590 a trader came in selling the RUT Jan 26th 1550 Puts for 2.88 and then buying the RUT Jan 26th 1500 Puts for 0.93 taking in a credit of 1.95.  The payout as of this coming Friday appears below. 

RUT PO 01192018

As long as RUT stays above 1550, a level that hasn’t been tested since January 10th this trade will result in a profit equal to the 1.95 credit.  There is substantial downside for this trade, but RUT would need to lose over 6% next week for the maximum loss of 48.05