Small cap stocks are playing catch up by not losing as much as large caps. Last week the Russell 2000 (RUT) was down about 1% while the large cap focused Russell 1000 (RUI) lost just under 2%. RUI’s lead has narrowed to 0.75%. Since RUT stocks are more domestic in nature, I’m going to go out on a limb and say the trade war rumblings put more pressure on RUI that RUT last week.
We have experienced an unprecedented run in the relationship between the Cboe Russell 2000 Volatility Index (RVX) and the large cap focused VIX. Before 2018 (based on data going back to 2004) we had only a couple of instances where VIX was higher than RVX. As you can see below this has been the case for several days in 2018. We finished the week with VIX below RVX, but well below historical norms.
The highest close for the Russell 2000 last week occurred on Monday with RUT finishing the day at 1559.33. As the day was coming to a close a trader came in with a bearish outlook for RUT that most likely worked out pretty well. I know the trade is over because the March 2nd series were used. Specifically, the RUT Mar 2nd 1560 Puts were bought for 15.47 and the March 2nd 1540 Puts sold at 3.61 for a net cost of 11.86. The payout based on Friday’s closing levels for RUT appears below.
I highlighted two prices on this diagram as well. RUT’s Monday and Friday closing levels. The best outcome for this trade involves RUT closing under 1540 on Friday which was the case.