I don’t eat things. So let’s be clear: while risk is only risk until price action is on the downside, it will take a change in conditions to prevent small-cap stocks from falling from here.
This is about as vulnerable a chart as I’ve seen in a while. It has all attempts to move back to the August low around $210. And if it doesn’t burn all its bearish oil by then, last April’s low of $170 is in play. That’s about one-third the weather on Friday.
www.barchart.com
So to me, the increase in abnormal options performance for the iShares Russell 2000 ETF (IWM) is less of a surprise and more of a confirmation for those who have long viewed small caps as structurally stable. As of late Friday, Barchart.com’s unusual options activity page shows a huge increase in put volume suggesting the “smart money” is no longer treating IWM as a passive value play, but instead preparing for a significant technical downside. And I say, it’s about time!
You see, the real problem with IWM is that it has become a non-alpha asset class that consistently fails to justify its high volatility. When the market is at its best, IWM often competes only with the returns of the Invesco S&P 500 Equal Weight ETF (RSP), which offers the same diversification benefit without exposure to thousands of companies that lack the strength of the microcap space.
For investors looking for true small-cap growth, funds targeting even small-cap stocks can often offer a more pure play, with IWM stuck in a middle ground where it captures all the downsides of a weak market with very little upside of upside potential. I recently added the iShares Microcap ETF (IWC) to my core portfolio of 10 ETFs that I rotate through.
From a fundamental perspective, IWM’s downside is driven by its sector mix, which leans toward healthcare and industrials, sectors that face more structural disruption than the S&P 500 index’s tech-heavy majors. In an environment where persistent inflation remains a concern, these smaller companies often face high borrowing costs and steep declines during market volatility. The rapidly deteriorating technical picture is the final piece of the bearish puzzle.
IWM has experienced significant downward pressure recently, falling more than 2% in one session to close at 250.89 last Friday at 250.89. The increase in put volume is a clear signal that the market is finally seeing what I have believed for a while: when the flow goes out, IWM is the first to leave investors.
In particular, the following unusual IWM options, highlighted in yellow on either side of these 2 SPY contracts, are currently notable for their popularity:
www.barchart.com
Strike 238.00 (April 03/20/26): A very high volume to open interest (Vol/OI) ratio is shown at 38, with volume over 96,000 versus open interest of just 2,526.
Strike 239.00 (Open 03/20/26): Recording a volume/OI ratio of 22, with large volume of 112,017 compared to open interest of 5,177.
Strike 245.00 (Octage 03/13/26): It has a volume/OI ratio of 12.4, as volume reached 67,437 against open interest of 5,451.
Strike 250.00 (Octage 03/13/26): Seeing a volume/OI ratio of 4.4, with volume of 75,409 against open interest of 17,207.
With momentum indicators turning negative and institutional hedges piling up, it rightly warrants attention as a primary instrument for those betting on continued small-cap underperformance.
Now, the options mentioned above are very short term. But this article is about “abnormal” activity, not the normal activity I expect to see if IWM goes away any further. For example, that all placed contracts will find an aggressive bid, because the hopes of “this time is different” will disappear.
www.barchart.com
This is a really bad chart above. The moving average is highlighted, the Percentage Price Oscillator (PPO) is crossing zero, and the shape of this PPO line screams “getting worse” due to the increased downward angle late last week.
With last weekend’s volatility around 30, it may be a case where I spend the first part of this week trying to “take big shots with small money”, one of my trading mantras. Those 3/20/26 $238 puts will fit the bill. They are not cheap, for sure. But I discovered this year that once the horse leaves the proverbial barn, even above-average volatility can reward buyers for a little while.
Created by Rob Isbitts ROAR ScoreBased on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and build their portfolios. For Rob’s written research, see ETFYourself.com.
As of the date of publication, Rob Asbett had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
