Sudden Volatility Spike Brings Small Cap Options, Outflows Into Focus

Analyst/ETF Trader Paul Weisbruch of Street One Financial brings us his daily fund flows update, which today points out the massive sudden uptick in volatility that in turn has put several near-term options trades in play, and notes some recent outflows in small caps.

Just yesterday we were lamenting rather inactive ETF/Index options markets, as well as a $10 handle VIX, and “Voila,” we have a major Wednesday morning sell-off in equities.

We have seen interest in the May 240 line puts in SPY, which are firmly in the money now given today’s down move. These options expire this Friday.

Elsewhere, near term May puts in Small-Caps are bid too, with the May 137.50 puts trading in IWM (iShares Russell 2000, and these are also well in-the-money now. IWM has seen modest outflows in recent sessions with about $800 million leaving the fund.

Speaking of the VIX, today the index is up over 23%, and contango is present in the futures markets as it typically is, depressing “Long Volatility” ETPs like VXX. This ETM is up only about 10% today in early trading. This has not however stopped folks from trading VXX options, however, and we have seen May 14 calls there, as VXX just traded at a fresh all-time low just yesterday.

The iShares Russell 2000 Index ETF (NYSE:IWM) was trading at $135.61 per share on Wednesday afternoon, down $3.02 (-2.18%). Year-to-date, IWM has gained 0.56%, versus a 6.18% rise in the benchmark S&P 500 index during the same period.

IWM currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 31 ETFs in the Small Cap Blend ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.