Both the Russell 2000 (RUT) and Russell 1000 (RUI) had a solid week with both rising about 1.3%.  Small caps still lag large cap stocks, but since the summer RUT has been slowly chipping away at the lead held but the Russell 1000.

RUT RUI 10062017

After a dip to the lowest levels in 2017, which was then followed by a couple of weeks of small cap outperformance, the relationship between the CBOE Russell 2000 Volatility index (RVX) and VIX has returned to the elevated levels that have been common this year. 


VIX RVX 10062017


The first interesting trade of the week is worth covering in this space.  With RUT down at 1493 someone sold a far out of the money put spread that expires on the close next Friday.  They sold the RUT Oct 13th 1375 Puts at 0.60 and then bought the RUT Oct 13th 1340 Puts at 0.39 for a credit of 0.21. 

RUT PO 10062017 Fixed

The risk for this trade far outweighs the reward with a potential loss that could reach 34.79, but for that to happen RUT would need to close below 1340 which is a drop of just over 10% from where RUT was when the trade was initiated.  As long as RUT is above 1375 next Friday both options in this spread will expire and the credit will turn into a profit.  When trade was initiated this involved a drop of 7.9%, now that RUT is just over 1510, this trade will turn out OK as long as RUT is down about 8.9% next week.