Life Is Better With Options®: Cboe® RUTSM & MRUTSM Index Options

With the Federal Reserve slated to lower rates in its upcoming meetings, many anticipate that U.S. small-cap equities will likely benefit from these adjustments. Since April 2025, U.S. small-cap equities, as shown by the Russell 2000^® Index, have generated notably strong returns, surpassing their large-cap and mid-cap counterparts.

For traders and investors seeking broad exposure to U.S. small-cap equities, Cboe Russell 2000 Index Options (RUT) and Mini-Russell 2000 Index Options (MRUT) offer straightforward access. These products allow individuals to make directional trades – whether they are speculating on market movements or hedging portfolio risk. Below is a look at the unique value propositions of RUT and MRUT options, how investors and traders can leverage them to meet their objectives and how MRUT compares to the iShares Russell 2000 ETF (NYSE:IWM).

Level Setting: High Volatility Levels For U.S. Small Cap

Before trading or investing in small-cap stocks, it is important to understand the foundational aspects of the asset class. From a factor-investing perspective, a company’s size affects its performance; more specifically, smaller companies (small-cap stocks) typically outperform larger companies (large-cap stocks) over time. This premium exists because smaller firms are more agile, have higher growth potential and are exposed to greater risk. As such, small companies are also more exposed to market changes and tend to be volatile. Evidence of this is present when looking at the Russell 2000 Index  and contrasting it against the S&P 500^® Index, where the former is generally higher than the latter.

While volatility within the asset class can be good for traders as it affects how options are priced and potential profits, it is also something they must be cognizant of as they execute their investment strategy.

Distinct Value Propositions: RUT And MRUT

Both solutions can be utilized by traders of varying sophistication levels. RUT offers extensive exposure to the Russell 2000 Index and is ideal for speculating on market movements or hedging portfolio risk. The breadth and scope of the index offering enable large-scale institutions, high-net-worth investors, and retail traders to manage their portfolios with greater efficiency. While MRUT is one-tenth the value of the standard Russell 2000 Index option, its smaller size makes it more affordable and accessible to traders while retaining all of the benefits of index options.

Small In Focus, But Sizable In Impact

While contract sizing is a key difference between RUT and MRUT, traders can use MRUT to achieve significant outcomes. For example, a portfolio manager holding a $20 million small-cap allocation might purchase RUT puts to guard against a market decline. If that contract size is too large, the manager could opt for MRUT puts instead, which offer the same directional protection but with one-tenth the notional exposure. This allows for a more precise hedge, providing the ability to adjust the position size as needed. Since both options are cash-settled and European style, the manager does not have to be concerned about early exercise or the delivery of shares.

In another scenario, a trader anticipating a short-term increase in small-cap stocks might purchase RUT call options to gain leveraged exposure. Alternatively, the trader could opt for MRUT calls to take a bullish position with significantly less capital required. If the upward movement occurs, the percentage return is comparable; if it does not, the potential loss is more limited. This could make MRUT a better choice for experimenting with strategies or managing smaller portfolios.

Contrasting MRUT And IWM

While investors and traders can utilize IWM to gain their U.S. small-cap equity exposure, MRUT possesses attributes that could allow for a better investment experience. The settlement approach that occurs for each solution is a primary example, as IWM delivers the underlying shares, whereas MRUT is cash-settled. Additionally, index options are European style, meaning they are exercised only at expiration, minimizing potential disruption to the portfolio's structure at expiration. ETF options are American style, allowing early exercise, which can be disruptive.

 RUT and MRUT are Section 1256 contracts allowing traders the potential for a 60/40 tax split between long- and short-term capital gains, which mayreduce overall tax rates. In contrast, IWM options do not qualify for this tax treatment, so gains are taxed as short-term if the positions are closed within a year.

Taking Action With Cboe Index Options

Index options provide investors and traders with greater flexibility to gain market exposure, manage risk and enhance return opportunities. Cboe's index options grant access to diverse markets, feature cash settlement and are designed for specific client profiles, enabling a progressive product experience over time. When combined with proper education and practical experience, index options can serve as an important part of portfolio management.

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This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.