- Michael Allison, CFA
- 53 minutes ago
- 3 min read
By Michael Allison, CFA
The Quiet in the Index Is the Real Risk
This week’s Chart contains a one-line caption: Worry about individual stocks is at an all-time high. I think the caption has the story backwards.
The line in the Chart shows the spread between two fear gauges.
The VIX measures how nervous traders are about the whole market, the S&P 500, over the next month. Think of it as the price of insurance on the index.
The VIXEQ does the same thing for individual stocks and averages them weighted by market cap. Subtract one from the other and you get how much more it costs to insure a single name than the index. That gap just hit about 30, the widest in more than a decade, up from a long-run norm closer to 10.
Apollo’s Chief Economist, Torsten Slok, sees that as fear of individual companies. I mostly see it as plumbing.
Implied volatility is a major determinant of how options are priced. And prices come from supply and demand, not feelings. Two different things are happening in two different options markets, in my view.
On single stocks, there’s a flood of buying. Retail traders piling into call options on Nvidia and other tech names before earnings. Same-day options on whatever name is hot that week. Dealers forced to buy stocks on the calls they’ve written in order to keep their hedges flat.
All that demand bids up the price of single-stock options, and that shows up as high implied volatility. Some of it is worry. A lot of it is gambling.
On the index, the opposite is happening. There’s now a giant business built around selling index options for income. Covered-call ETFs, buffer products, pensions writing calls every month. All that selling pushes the price of index insurance down, and that shows up as a muted VIX.
In my opinion, the spread is so wide because one market is being bought hard and the other is being sold hard. Worry is part of it, yes. The mechanics of the options market could be most of it.
Now the part that actually matters for investors. The risk worth watching sits on the calm side of the ledger. A VIX at 15 in a market this concentrated, where a handful of stocks carry the whole thing, is not the same animal as a 15 in a broad and participative market. The steady option selling that holds the VIX down works right up until it doesn’t.
That spread will narrow at some point, perhaps significantly. It always has. There are two ways it can get there. Single-stock vol could fall, but I doubt it, because the options-market shifts driving it look structural rather than temporary.
Or... Index vol rises to meet it. That’s the path I’d bet on, and the trigger could be almost anything that wakes the index up from a risk perspective: a crack in one of the megacaps, a rate or inflation scare (or both), a credit event nobody sees coming.
A muted VIX is a sign of confidence, but when that remains the case for too long, confidence becomes complacency. The quiet you see in the volatility of the index is the thing most worthy of worry.
Sources: Apollo Chief Economist (Torsten Slok), “Worry about individual stocks is at an all-time high” (data via Bloomberg, Macrobond); Mandy Xu, Earnings Angst Drives VIXEQ-VIX Index Spread to Record High, Cboe, Oct. 13, 2025; There’s a record disconnect unfolding in the trading pits right now, CNBC, May 29, 2026
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