A Spread No One Is Watching (Hint: You NEED To)

If you are wondering if the VIX at 24 means there is no more risk in the market you are wrong…

There is HUGE risk in the market, you just need to look somewhere else to see it.

The VXN, the VIX of the NASDAQ 100 (the QQQ) is still way above 30.

Interestingly, the spread between the VXN and the VIX is astronomically high.

While off the year high from a few days ago, there is still a GIANT spread between the cost of insurance on the SPX and the cost of insurance on the NDX.

The chart below tracks the VXN less the VIX, I think you can clearly see what is happening:

VXN, 8 points over VIX, is at a level we RARELY see.  You have to go back to 2006 to see the spread this wide.

So what does this mean?  

If one wants to be long the market, it might make sense to do so being long the SPX or the DJX and then using puts on QQQ to hedge it.

This is called a dispersion trade, and professionals love it.

The market seems to be worried about the QQQ’s prospects…

This is something to watch.

Your Only Option,

Mark Sebastian

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