We saw that the US small cap index, such as the Russell 2000, put in two consecutive days of 3% move due to favourable commentary from the FOMC meeting.
I would suggest investors don’t chase this.
In a recurring episode of Excess Returns OPEX Effect, Brent Kochuba explains that more calls are being bought than in the past. Traders are trying to position for a period where small cap are seasonally stronger. The other reason is that they are betting on a broadening out of this market improvements to other sectors of the economy.
If there are so many call options on the Russell 2000 ETFs, it means that options market makers or dealers are selling a lot of call options to these people. The options market makers’ objective is to make money but also remain relatively market-neutral. Since selling call options is a bearish position they need...