I’m considering a short pair-trade, and I want to see if my logic holds up.
Nasdaq is fast-tracking SPCX into the Nasdaq 100 later this month. The S&P 500 declined to fast-track, so it won't be in SPY anytime soon. That means any index distortion is going to be hyper-concentrated in QQQ/NDX.
Here's what I'm thinking: If I open a short position on SPCX right now (probably using a synthetic put), I have a built-in natural hedge via my QQQ exposure.
If SPCX keeps ripping, forced passive buying from index trackers could create a supply squeeze leading up to the inclusion date. But my long QQQ exposure should theoretically hedge that (assuming the upside from here has to be slowing). Meanwhile, any fundamental valuation correction down the line gives me a clean win on the short side.
Am I overestimating the hedge? Or, underestimating the remaining upside in SPCX? Anything else I may be missing? Happy to hear all takes.