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It looks like there is a little “GameStop effect” visible in the pricing of QQQ options, but through TSLA.
Recall months earlier during the height of the meme craze when GME vol reached silly levels north of 500, implied correlation in the Russell 2000 cratered.
This was because the stock gained so much market cap and carried so much vol, that it “passed through” to the index vol in a meaningful way. Index vol is the weighted average of the singles, adjusted for some implied correlation level.
Back then, some of the names in the Russell carried such high vol levels (and inflated market caps) that they passed a lot of vol through to the index. This moved IWM vol up, but also shifted the relative driver of the index vol more to the single stock side versus the correlation side.
So, all else equal, when a component name (or a few names) has a massive increase in vol and increase in market cap at the same time, implied correlation is likely to fall.
In the QQQ, over the past month, 1m IC has cratered from around 47 to below 27 (6th %ile since 2018). This has occurred amidst an increase in the market cap of TSLA on the order of $450 billion and a near doubling of 1m implied vol from 35 to 68.
What results is the fourth largest name in the QQQ has an implied vol that is sky-high relative to its “GAMMA” compadres. GOOG is 24, AMZN is 24, MSFT is 19, META is 30 and AAPL is 20.
The point is that buying QQQ vol has become much more about buying a single name in the index than it normally is.
It’s easily the case that a decline in TSLA stock could coincide with a decline in the vol. The stock is exhibiting a classic asset / vol positive feedback loop. This is worth thinking about insofar as QQQ vol is concerned. If one of the largest components declines and its vol declines at the same time, QQQ vol could underperform expectations on a down move.
Have a look at the scatter of 1m implied vol versus price of QQQ (figure below).
The white arrow gets from you from October 15 to today. Q’s are up 8.5% and the vol is up 1.5 points. That’s not normal.
Over the same period, TSLA vol has gone from 35 to 64 as the stock has added 46%. Again, not normal.
Positive feedback loops between an asset and its implied vol never end well. Think: Tech in 2000, crude in 2008, gold in 2011, Bitcoin in 2017 and vol itself in 2020.