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Could XKL implied volatility increase post Apple-Nvidia rebalance? UBS weighs in

Published 14/06/2024, 06:50
© Reuters

Investing.com-- UBS analysts downplayed expectations that implied volatility for a major tech exchange-traded fund would increase drastically in the event of a rebalancing where Nvidia’s weightage overtook Apple. 

Speculation over a major shift in the The Technology Select Sector SPDR® Fund (NYSE:XLK), one of Wall Street’s biggest tech ETFs, grew this week after artificial intelligence darling NVIDIA Corporation (NASDAQ:NVDA) briefly overtook Apple Inc (NASDAQ:AAPL) as the world’s second-largest listed company. 

This also raised questions over an ramp-up in implied volatility for the ETF, given that Nvidia trades at a substantially higher implied volatility than Apple, after the chipmaker saw a massive boost in valuation over the past year. 

But UBS analysts said that the overall increase in volatility for the index would be limited after such a potential rebalancing, a less than 1 point increase. 

Additionally, a rebalancing in the ETF is also contingent on Nvidia’s floating adjusted market capital closing above Apple on Friday. But Apple blew past Nvidia in valuation over the past three sessions, becoming Wall Street’s most valuable company as investors cheered the iPhone maker’s plans to add AI to its products. 

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