Large cap stocks ruled the week last week, at least in relative terms as the Russell 1000 (RUI) only gave up 0.18% while the Russell 2000 (RUT) was down 1.47%. Without checking I’m pretty sure that’s the biggest large cap out performance since the election.
Small cap volatility remains elevated relative to large cap volatility as indicated by the CBOE Russell 2000 Volatility Index (RVX) levels relative to VIX. I left 2016 on this chart because I don’t think the price action this year does justice to showing how high this premium is relative to history.
On Tuesday the Russell 2000 began the holiday shortened week at about 1360.00. Some trader came into the RUT post at CBOE and executed an iron condor that gives more room to the downside than the upside. On the put side of the spread they sold the RUT Jan 27th 1255 Put for 0.63 and purchased the RUT Jan 27th 1220 Put for 0.40. The call side of the trade involved selling the RUT Jan 27th 1390 Call at 4.65 and purchasing the RUT Jan 27th 1400 Call for 2.65. After all that the trade resulted in a credit of 2.23 and a payoff on Friday the 27th that looks like the diagram below.