Small-cap stocks have had an incredible year. The Russell 2000, the small-cap index, is up 23 percent so far in 2013, easily besting the S&P, the Nasdaq and the Dow. But judging by options prices, that outperformance will not endure.
As the Russell moves higher, the Russell VIX—which measures the prices that investors are paying for options on the Russell 2000—should be expected to move lower. This is because investors generally buy options to get "insurance" on the index, so the Russell VIX tends to measure the amount of fear in the Russell.
The problem is that recently, "the Russell VIX is starting to move up as the Russell is making new highs. We like to see fear subside during those moments in time," said Brian Stutland, the managing member of Stutland Volatility Group and an "Options Action" contributor. But "The Russell VIX is now at a higher level than it was in March, yet the Russell itself is significantly higher."