Investing.com’s stocks of the week
So while the S&P 500 grinds higher, mainly due to the implied volatility dispersion trade ahead of earnings from the mega-cap technology names, implied volatility on the index is rising, too.
Tuesday was another volatility dispersion session, with the dispersion index rising. Surprisingly, the 1-month and 3-month implied correlations also rose on the day.
The spread between the Dispersion index and the 3-month implied correlation index is nearing its peak, and it’s very wide. Readers of this Free commentary know that I have shown this relationship many times in the past, and it has been a reliable indicator.
This is mostly due to the separation between the implied volatility of S&P 500 constituents and the index-level implied volatility. Again, when spreads have gotten this wide, it’s time to be very careful. After the earnings season, individual stock implied volatility will fall, and the trade will begin to unwind.