RUT is the symbol for options based on the Russell 2000 (RUT) Index, a leading benchmark for the performance of small-capitalization stocks. Options on the Russell 2000 have a $100 multiplier, so that, for example, if the Russell 2000 price is at 480, an investor might consider hedging a $48,000 small-cap portfolio with one RUT option.
The Russell 2000 Index was created in 1984 by Frank Russell Company and was designed to track the performance of small-cap companies. RUT options make it simple to participate in the small-cap market.
The popularity of the Russell 2000 as a small-cap benchmark leads to four fundamental reasons for using RUT options:
Investors are able to trade a broad market by making one RUT trading decision rather than making the many decisions involved with investing in numerous individual stocks.
Russell 2000 options offer a convenient and easy way to help reduce the market risk of a broad market portfolio of many small-cap stocks, without disrupting the make-up of the portfolio.
RUT option purchasers risk only the premium they pay for the option. The risk is both known and limited.