Russell 2000 faces heavier bearish options bets ahead of U.S. data

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Russell 2000 bearish options

Highlights

Put trading accounted for over 70% of IWM options premium on Wednesday, far exceeding QQQ's 60% and SPY's less than 40%.
A major $8 million long put spread bet on IWM anticipates a 7% drop by mid-July, reflecting increased bearish sentiment.
Upcoming data releases Thursday, including PCE, jobless claims, and GDP, could influence rate expectations and drive near-term volatility in small-cap stocks.

Options positioning points to rising caution

As reported by CNBC, options traders in the iShares Russell 2000 ETF, IWM, are showing the most bearish stance among major equity benchmarks before data that includes the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index.

Put trading made up more than 70% of all options premium exchanged on Wednesday, compared with 60% in QQQ and less than 40% in SPY. By volume, nearly three times as many put contracts traded as calls, with more than 380,000 puts likely bought versus fewer than 270,000 sold, according to ThinkOrSwim data. In SPY, by contrast, call and put activity is mostly balanced.

One notable trade on Wednesday involved a buyer spending $11.4 million on 277-strike puts expiring July 17 and selling $3.6 million of 271-strike puts expiring June 18. The long put spread costs roughly $8 million net and implies a bet that IWM falls about 7% by mid-July.

Rate sensitivity keeps small caps in focus

The bearish flow may reflect concern over the Russell 2000’s sensitivity to interest rates. Small-cap indexes hold a larger share of unprofitable companies, making the group more exposed when Treasury yields rise and financing conditions tighten.

That risk is being assessed as the bond market rebounds over the past six days after yields touched multiyear highs as recently as last week. Thursday’s calendar includes weekly jobless claims, durable goods orders, an update on U.S. GDP and the latest reading on personal consumption expenditures, all of which could influence rate expectations and near-term sentiment toward small-cap stocks.

In our earlier analysis of Bank of America (BAC), we noted the stock was technically consolidating near the $51 area, caught between nearby support around the 50-day moving average and resistance near $51.98. With momentum indicators split and several oscillators flashing overbought conditions, our experts highlighted heightened uncertainty and warned that a break below key support could open the door to a deeper pullback.

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