After notching a 1% gain in 2020 through February 21, U.S. small caps as reflected by the Russell 2000® Index took a major turn, losing nearly 22% in the eleven trading days ended March 9.
At the same time, the Cboe Russell 2000 Volatility Indexsm (RVXsm), which measures the market’s expectation of 30-day volatility implicit in the prices of near-term Russell 2000 Index options, reached a multi-year high of 42.47 on February 28 and closed at a near record high of 52.96 on March 9, significantly higher than its historical long-term average of 23.45.
The shift in market sentiment from relative complacency to fear driven has investors embracing futures and options based on the Russell 2000. Trading activity has driven record volumes at the CME Group and Cboe Global Markets.
On the Cboe, daily volume in options contracts based on the Russell 2000 Index (RUT) reached a high of over 115,000 on February 25, nearly triple the average daily volume over the last year. Additionally, total volume for the month of February 2020 was 72% higher than that in 2019. And annualized volume for RUT is 43% higher YTD in 2020 relative to 2019.
At CME Group, average daily volume in Russell 2000 Index-based futures has more than doubled in the last two weeks. CME Group has experienced a very high number of Block and BTIC transactions, where buyers and sellers can trade at a single price, with guaranteed execution and flexibility of trading, viewed as additional ways to minimize risk.
Tim McCourt – Managing Director, Global Head of Equity Index and Alternative Investment Products, CME Group:
"Given heightened global equity market volatility in recent weeks, it is not surprising that investors have gravitated toward Russell 2000 Index-based futures to hedge U.S. small cap price risk."
Richard Rosenthal – Director, Business Development, Cboe Global Markets:
"The recent historical high closing prices for the Cboe Russell 2000 Volatility Index, or RVX, help provide historical perspective and illustrate heightened investor concern around the U.S. small-cap equity market. We have also seen this concern reflected in recent daily volume growth in options contracts based on the Russell 2000."
FTSE Russell index-based derivative contracts, including futures and options, are listed for trading on a wide range of global exchanges. Visit the FTSE Russell website for more information.
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