Last week the Russell 1000 (RUI) and Russell 2000 (RUT) both gained a little ground, with RUI rising 0.41% and RUT winning the week by a nose by moving higher by 0.49%. For the year RUT is about 3.4% higher than RUI.
Both VIX and the Russell 2000 Volatility Index (RVX) were lower last week as the equity markets survived (and we endured) the final debate before the presidential election. The RVX / VIX ratio gained a bit with the drop in volatility but is still off 2016 highs.
On Friday, with the Russell 2000 around 1212, a trader came into the RUT pit with an outlook assuming small cap stocks will be range bound for the next month. The specific trade is a favorite among traders that want to benefit from time decay and believe an underlying market will fall between two price levels at expiration. The put side of the spread involved selling the RUT Nov 18th 1170 Puts for 10.50 and buying the RUT Nov 18th 1165 Puts for 9.55. On the call side the RUT Nov 18th 1250 Calls were sold at 6.05 and the 1255 Calls were purchased for 4.80. The net result of this trade is a credit of 2.20 and a payoff at expiration that looks like the diagram below.
Note, that if the Russell 2000 is not 4% lower or 3.1% higher at November expiration then this trade works out well. As a final note, November 18th is a standard third Friday expiration which means these options are AM settled.