The Nasdaq-100's total return has topped 24% year-to-date. The index has also nearly tripled since the end of 2022, but the rally rests on a narrow group of mega-cap tech stocks. That narrowness, combined with unusually low implied correlation in the options market, is shaping how CNBC frames risk heading into November.
A rally led by a handful of stocks
The Nasdaq-100's total returns, including dividends reinvested, have climbed 193.37% since the end of 2022. Yet the index's strength has come from what CNBC describes as low breadth: the top 10 companies in the index make up half its weight by market capitalization.
Narrow leadership means the index's overall direction depends on a small, undiversified group of companies continuing to perform. That concentration raises the question of what happens to the broader index if that same group reverses.
Options pricing flags low implied correlation
One way to read that risk shows up in implied correlation, a measure of how options traders price index risk relative to the risk of the individual stocks that make it up. The 1-month forward-looking implied correlation for the Nasdaq-100 currently sits at 0.177. That is closer to the three-year low of 0.128 than the three-year high of 0.567. The 1-month trailing realized correlation stands at 0.158.
Low implied correlation means index options are priced as if the Nasdaq-100 were broadly diversified, even though a handful of stocks are driving its returns. As a result, CNBC notes that Nasdaq-100 and QQQ options are getting a comparatively favorable price for traders looking to go long volatility.
Midterms add to near-term uncertainty
CNBC points to the upcoming November midterm elections as a catalyst that could inject fresh headline risk and sector rotation into markets, alongside mega-cap tech earnings and shifting macroeconomic data. Those overlapping catalysts, the outlet notes, could make the case for defined-risk ways to stay exposed to further gains.
One structure CNBC outlines: buying the QQQ November 760 calls for approximately $22.70 on the underlying exchange-traded fund. That premium is equal to about 3% of QQQ's current price. Under that approach, the capital at risk is limited to the premium paid, or $2,270 per contract, while the potential upside remains uncapped if the index pushes to fresh highs.
Source: CNBC
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