Options traders betting against small caps ahead of U.S. macro data

Options traders have ramped up bearish bets against small caps ahead of a slate of U.S. economic data releases, including the Fed’s preferred inflation gauge, CNBC reports. Investors’ concerns are likely tied to the data due Thursday, which could strengthen the case for higher interest rates from the Fed.

Options traders in the iShares Russell 2000 ETF (IWM), which tracks the smid-cap Russell 2000 index, on Wednesday bought 70% put contracts and only 30% call contracts, CNBC notes.

At the same time, put and call activity in the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 index, was roughly even. That suggests traders are currently far more bearish specifically on small caps, CNBC writes.

Traders are likely becoming nervous ahead of upcoming U.S. economic data releases, including the Fed’s preferred inflation gauge, the personal consumption expenditures index, CNBC said. The data is scheduled for release on Thursday. Weekly jobless claims, a U.S. GDP reading, consumer spending data, and durable goods orders will also be released the same day.

The Fed takes all these indicators into account when making interest-rate decisions, which in turn affect companies in the Russell 2000 index, as smaller firms carry a larger share of floating-rate debt than their larger peers. CNBC also noted that the Russell 2000 has a high percentage of unprofitable companies, making the index particularly vulnerable to spikes in Treasury yields. Treasury yields hit multiyear highs last week, CNBC added.

The Russell 2000 hit fresh all-time highs several times in May and has gained 17.6% year to date.