Fund cheap single-stock calls by selling index volatility
The guest argued that investors can fund cheap single-stock calls on NVIDIA and Tesla by selling relatively expensive S&P 500 or Nasdaq-100 index volatility.
The argument
The guest observed that implied volatility for single stocks like NVIDIA and Tesla is exceptionally low, with the market heavily positioned in puts and showing little interest in calls. By selling index volatility (SPY or QQQ) to buy these cheap single-stock calls, investors can capture upside if a rally occurs, while maintaining defined risk if the market declines.
The thesis, stress-tested
✓ What validates it
- ✓NVIDIA and Tesla earnings reports beating expectations and triggering a short-squeeze style rally
- ✓Implied volatility rank for NVDA rising from its current low level of five
▸ Risks discussed
- ▸Geopolitical escalation (e.g., conflict in Iran) causing a market crash
- ▸Earnings events failing to catalyze the expected upward repositioning
Hear it yourself
"We have included this episode in the excess returns feed. If you want to keep receiving new episodes, you can subscribe to the OpEx Effect on all major podcast platforms using the links in this episode description. Thank you for listening. We hope you enjoy the show. Only one time ever did we have a bigger drop from VIX '25 down, and that was in 2007 in the GFC. Looking forward here in into where we are, this oil equity vol correlation seems to have, at least for the time being, snapped. A lot of this is just reciprocal or reflexive in nature. Right?"
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