Summary
- With Nvidia’s earnings behind us, the crowded dispersion trade is likely to unwind, reducing single-stock volatility.
- This earnings season saw a historic spread between single-stock and index volatility, with VIXEQ/VIX ratios at the upper end of historical ranges.
- Dispersion and implied volatility measures signal stretched positioning, suggesting a potential reversal as implied correlation is set to rise.
- Realized volatility has normalized, but moves above 70 bps could push VIX higher, risking a sharp unwind reminiscent of past cycles.
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With Nvidia’s results now reported, dispersion season may be ending. Dispersion in the equity market has been a crowded trade over the past several weeks, and positioning now appears stretched and vulnerable to an unwind.
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