VIX is lying to you

There is a historical phenomenon that the market always looks calm right before it breaks. And there is a unique setup that takes place in the options market that is unfolding right now. In 1999 investors weren't just buying the stock market, they were buying a huge theme. That theme was called the Internet. And the Nasdaq rose 86% and Cisco who was selling the hardware behind the boom to becoming the most valuable company on earth. But the average stock, what was it doing? Going nowhere. Only a handful of names carried everything. And here is the really underneath the options market started to split. Volatility on single names like Cisco started to get really really expensive. But the index volatility like the S&P 500 or the Nasdaq stayed really cheap. And if you want to visualize this, it means dispersion rose. So stocks started to trade on their own stories and correlation fell. So stocks stopped moving altogether. There really was no the market. And if you want to look at this, all you have to do is pull up VIX EQ minus VIX. Now everything was humming along fine with the Internet boom until the macro picture changed. The Fed took rates to 6.5% and the CapEx behind the Internet was funded just like it's funded today with debt. And then the math stopped working. Stocks started moving together again, but this time it was on the way down. When the dust settled after this crash, Nasdaq was down 78%. Now let's use that as a lesson for today. We can swap fiber for GPUs and we can swap Cisco for Micron. The same split in volatility is happening. Single name vol has been rich, index vol has been cheap, correlation is at the lows. But over the past month, this signature has started to reset and the AI leaders have fallen 30%. So this volatility spread is normalizing while rates stay high and CapEx keeps rising. And this also isn't some options nerd footnote. This is what a market looks like when the main theme starts to lose control. So when you look at the VIX today, whether it's on your trading screens or on Bloomberg and it seems cool and calm and collected, remember calm is not the same thing as safe. So if you want to see how to navigate this market this late in the cycle, we will send our analysis right to your inbox. Just head to my profile and click the link.