U.S. Small-caps vs. Large-caps
U.S. small-cap stocks are leading the equity markets year-to-date. The Russell 2000 Index, widely viewed as the bellwether for measuring the performance of small-cap stocks has risen 5.62% in 2018 compared to a rise of 1.54% for the U.S. large-cap Russell 1000 Index.
Several factors may potentially be contributing to the small-cap outperformance, including:
- Revenues – Majority of small companies derive revenues from domestic activities
- Trade policies – new tariffs will have a lower impact on small companies
- Tax cuts – Many small companies are taxed at a higher rate than large companies.
Low VIX/RVX Ratio:
The outlook for a continued rally in U.S. Small-caps is seen by the differences in the 30 day expected volatility on the S&P 500 vs Russell 2000. Historically, small-caps have a wider price dispersion. As such, the implied volatilities measured by the Cboe Russell 2000 Volatility Index (RVX) are typically at a premium over the Cboe S&P 500 Volatility Index (VIX).
On average for the last 10 years, the VIX/RVX ratio is 1.28. Today’s VIX/RVX ratio reflects a lower implied volatility in RVX relative to VIX. In addition, the low RVX level indicates an expectation for a continued rally in the Russell 2000 Index.
Highlighted RUT Strategies:
The Russell 2000 Index delivered most of this year’s rally from May 1st – May 17th (+4.83%). Investors are faced with many choices to express a bullish view on the markets. Here’s a couple of bullish options strategies based on RUT using the closing mid-point prices on May 1st and May 17th that potentially performed well.
For additional information please visit the following Cboe webpages:
Russell 2000 Index Options: www.cboe.com/RUT
Cboe Russell 2000 BuyWrite Index: www.cboe.com/BXR
Cboe Russell 2000 30 Delta BuyWrite Index: www.cboe.com/BXRD
Cboe Russell 2000 Conditional BuyWrite Index: www.cboe.com/BXRC
Cboe Russell 2000 PutWrite Index: www.cboe.com/PUTR