After widely underperformed the broader market this year, small caps are suddenly hot. The Russell 2000 rallied more than 1 percent in the last month versus a flat S&P 500, but, one trader made a massive bet that the run will soon come to a disastrous end.
On Monday, the trader bet more than $20 million that the IWM, the Russell 2000 ETF will fall 25 percent by the second quarter of next year. The trader bought 110,000 May 107/90 put spreads for an average price of $2.10 each. This is a bearish strategy where a trader will buy a put and then sell a lower strike put of the same expiration to offset the cost. The goal is to target the strike you are short, or in this case for the IWM to fall as low as $90 by May expiration. That's a 25 percent decline from the ETF's current stock price of just under $120 a share.