I typically watch the CBOE Daily Market Statistics around open, as the balance of derivative positions taken early in the day are often good indicators of morning momentum.  Among the various implied volatility and buy-write indexes on the page, there are two especially to watch - RVX, the Russell 2000 volatility index, and the VIX, the standard CBOE volatility index. 

    Stepping back from this single morning snapshot, however, these two indexes paint an interesting picture of the market this year.  Though the Russell volatility index is a relatively new indicator in the context of long-term index comparison, there still appears to be a sharp dichotomy in its dynamics.

       Note how the overall CBOE market volatility index change is greater on the year than the Russell 2000 volatility - that is, the implied total market volatility represents a higher risk level than the small cap Russell 2000 volatility level.  Though one could argue that the Russell derivative contracts on which the RVX index is based are much less liquid than the respective VIX contracts, both are easily liquid enough to eliminate all but trivial arbitrage. 

    This, however, is in stark contrast to prior behavior of the two indexes.  Up until the February Greenspan R-word incident (the first, I should say), the VIX indicated that the overall market was less volatile than the Russell.  Though the trend was weakening compared to the fall and winter of 2006, the strong market leading up to the end of February still verified this relationship.

    After this market shock and its following correction, the VIX rocketed to nearly 25% above the RVX.  Though the trend is a volatile one, it continuess to hold despite the strong earnings season and M&A activity for large caps. 

      I'd be very interested to hear any arguments for this relationship, either theoretical or technical, and will certainly continue to watch this relationship for a definite change in trend.