This past week was basically a tie between small and large cap stocks as the Russell 2000 (RUT) and Russell 1000 (RUI) were both up about 1.5%. Four months into 2017 and RUI continues to maintain a lead of about 3.3% over RUT.
Last week VIX got smashed as did the CBOE Russell 2000 Volatility Index (RVX). A return to the low end of the range resulted in the VIX / RVX relationship returning to higher levels.
With Weeklys available for trading all kinds of alternatives that were not available to option traders are now possibilities. Every Friday if you have a price outlook for any of over 400 markets you will have options expiring. Thursday last week someone had a bearish outlook for small caps. This outlook stretched over about a day and a half of trading. With the Russell 2000 at 1420 a trader sold the RUT Apr 28th 1410 Calls at 12.50 and purchased the RUT Apr 28th 1430 Calls for 1.81 and a net credit of 10.69. this bear call spread payout as of this past Friday’s close appears below.
This trade was well timed on Thursday and benefitted from small caps having a tough time on Friday losing 1.18% and finishing the week at 1400.43.