NVDA Vol is Simply Too Cheap

Trades for a vol awakening post July - And a walk through correlation and dispersion vol measures/implications

Ahhh, July. Always great for some financial comedy, especially in the momentum and beloved story stocks. (COIN and GS market caps converging soon? Hilarious) Tall tales and summer drunkenness combining with no cops on the beat/no actual sellers…

Well there are sellers, vol sellers. They can bleed you to death, and that equals opportunity. I’ve wisely avoid owning index vol because…the dispersion herd, the folks that trade vol arbitrage by selling index vol to own dispersion vol, they are back in droves. It is earnings season after all, so companies and their results will shoot stocks in different directions. Charlie the celebrity quant, he mentioned this typical earnings season vol trade yesterday (along with vol control which as usual will be piling into equity exposure right at the highs as usual):

This stuff keeps cropping up because….it makes money of course. Bloomberg has covered it many times:

So, let’s take a look at how this works, because it is partly why the market is bleeding vol to death right now. Here is a chart of one month correlation:

That chart is simply an implied (it uses options on stocks) measurement of how much stocks are expected to move together, and in those boxes, you see how it tumbles into earnings seasons, but often rises soon after.

Now take a gander at this, it is the dispersion index: