With both the S&P and Nasdaq continuing to trade in a violently narrow range, we continue to witness what can only be characterized as massive volatility in some of the largest stocks. Consider these moves we have seen in just the last few months:
Meta Platforms (META) has now gone up for an incredible TWENTY trading days in a row. Put another way, Biden was in office the last time META ended the day in the red. During that time META shares have rallied by over 20% and added over $300 Billion in market cap:
Tesla (TSLA) saw its shares rally by an incredible 130% in less than two months, and then dropped by a third also in under two months:
Alibaba (BABA) has seen three large moves just since last summer. The 63%+ rally from the July lows to the October highs was then followed by a 32% decline between Oct and January and in just the last month the stock has rallied nearly 60% and eclipsed the October highs:
Just last week we saw several large moves on earnings as well. Applovin (APP) gained over 32% on the two days since they reported earnings, and this move is coming on the heels of the shares rallying by nearly 50% when they reported in early November. On the flip side, Trade Desk (TTD) declined by about a third since reporting their earnings on Wednesday after the close. In addition, there were several other names that moved considerably both on earnings as well as just during “normal” trading. Keep in mind, these moves are happening as the main market volatility indicator (VIX) has once again moved back to the low-end of its 2-month range. Perhaps this low-level in the VIX is suppressing implied volatility for many of the single names? I bring this up because as all these examples show, we continue to get moves in some of the largest names in the market that continue to surprise and clearly were not priced in as “expected” in the options. Stocks with market caps near $2 trillion (META) going up for 20 days in a row, and TSLA more than DOUBLING in 2 months, and gaining ~ $1billion in market cap, are just two examples of moves that on the surface seemed extremely unlikely but continue to happen on a somewhat regular basis.
For now it appears that the momentum trade is alive and well. Has anyone looked at the ARK fund etf (ARKK) lately? It gained ~ 9% in the last 3 trading days (while QQQ was up less than 2% and SPY up less than 1%). In the past, when we have seen this type of upside momentum, outsized moves in names that are “working” become much more commonplace. This “unusual” activity should be a wake-up call to investors, especially those that use options in their respective portfolios. When single-name option volatility is muted due to the overall low level of vol (VIX), and realized moves for some of the largest companies continue to surprise, owning vol becomes a very attractive proposition. Whether it is buying puts on names that have had large moves higher, or buying far out of the money calls in names that either have declined considerably or have broken out to new highs, all scenarios should be considered. Please feel free to reach out to me to discuss specifics.
VIX index has moved back towards the 2-month lows
Ark funds etf (ARKK) went up by 9% in just the past three days and is at a multi-year high
