Small caps ruled the day last week as the Russell 2000 (RUT) rose 1.24% while the Russell 1000 (RUI) was down 0.11%. For the year RUI is up over 15% while RUT still lags at up 10%.
The relationship between the Cboe Russell 2000 Volatility Index (RVX) and VIX remained at low levels as small caps were in favor. I know hindsight is easy, but we can learn from it and the dramatic drop in the RVX / VIX ratio a couple of weeks ago may have been a precursor to the solid relative performance of small cap stocks this week.
Thanksgiving week is a funny one for the markets. We close Thursday and have a half day on Friday. At many shops the low person in the pecking order has to show up while the senior people spend a four-day weekend feasting, napping, and watching football. Typically, the week is pretty dull and someone is depending on this being the case next week. Friday morning, about an hour into the trading day with the Russell 2000 near 1485 someone came in and sold 129 of the RUT Nov 24th 1470 Puts for 3.53 who then purchased 129 of the RUT Nov 24th 1445 Puts for 0.93 resulting in a net credit of 2.60. The payoff if held through the close next Friday appears below.
The short strike, 1470, in this trade is down about 1% from where the Russell 2000 was trading when this trade was initiated. If some sort of news blindsides the market next week the worst case scenario at expiration involves a drop of 2.7% and a loss of 22.40.