The Russell 2000 (RUT) had a tough week, losing almost 1% while the large cap focused Russell 1000 (RUI) managed to rise by 0.26%. The outperformance of large versus small caps was threatened toward the end of the third quarter, but RUI is up 2.65% versus only a 0.27% rise for RUT in the fourth quarter.
Due to very low VIX and a rise in the CBOE Russell 2000 Volatility Index (RVX) last week, the RVX / VIX relationship finished the week with RVX at over a 60% premium to VIX. This happened earlier in 2017 with RUT rising by about 3% in the 10 day period that followed the excessive RVX to VIX premium.
The peak for the Russell 2000 this past week occurred just after the open on Wednesday. A short term trade using RUT Weeklys was executed that, if held through Friday’s close, turned out pretty well. With RUT at 1509, someone sold the RUT Nov 3rd 1480 Puts at 0.92 and the RUT Nov 3rd 1525 Calls at 3.40. In addition they purchased the RUT Nov 3rd 1470 puts for 0.77 and RUT Nov 3rd 1535 Calls at 1.55. All this results in a RUT Nov 3rd 1470 – 1480 – 1525 – 1535 Iron Condor at a net price of 2.63. The payoff based on Friday’s close appears below.
RUT finished the week solidly in the zone of maximum profit for this trade. Also between implementation of the trade and Friday expiration the small cap benchmark never ventured outside the short strikes on this short term neutral spread.