Is This A Signal Of Trouble Ahead In The Russell 2000?

Mark Sebastian

The Option Pit VIX Light Is Red, And Volatility Will Drop.

Hey Traders,

While the VIX had a nice intraday pop on Tuesday, in the end, the index closed only marginally higher than it opened.

But that doesn’t mean all is well.

I have been watching the Russell 2000 (Ticker: RUT) the last few days, and the Cboe Russell 2000 (Ticker: RVX) — the VIX of the Russell 2000 — is starting to make some moves.

Here is what I am seeing.

While the VIX itself ended the day on Tuesday kind of ‘meh…’

(Remember, coming off of a long weekend, you can generally count on the VIX going up about 0.8 anyway, so a 1.20 gain is not a lot.)

The RVX has really begun to scream lately, and is now trading at nearly 25!

Chart courtesy StockCharts

What’s more, the spread between RVX and VIX has exploded:

Once this relationship spikes, it can keep going, and it tends to not be a good thing for the Russell 2000:

While I think the move in the RUT over the last three days is a bit overdone, it is possible we could be heading for more downside.

Your Only Option,

Mark Sebastian

VIX Edge

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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