Strange market anomaly is creating a buying opportunity in the Nasdaq 100

The Nasdaq-100 Index continues its historic run. Total returns (appreciation plus dividends) topped 24% year-to-date, and the index has nearly tripled, up 193.37% since the end of 2022 (again with dividends reinvested). If you're suffering from a mix of FOMO and vertigo from the steep price appreciation, read on.

One notable feature of this rally has been "low breadth". It's the same group of mega-cap tech titans doing the vast majority of the heavy lifting in the index overall. The top 10 largest companies in the NDX Index comprise half its weight by market capitalization.

Narrow leadership means the market's strength relies on a small, undiversified group of companies. For investors looking to play continued strength while reducing the risk of that same narrow group suddenly reversing, the options market may offer an answer. A way to go long tech with strictly defined risk.

The secret to this is a little wonky; it's called "implied correlation", but bear with me, it's worth it. Implied correlation is an adjunct to implied volatility - how options traders think of options prices. When implied correlation of an index is low, the prices of options on that index, at least relative ot the price of options on the individual stocks, are low. Think about that for a second: a handful of stocks are driving index returns, yet options on the index behave as if the index is well diversified, suggesting little risk that the same narrow path forward might suddenly double back on itself.

Right now, the 1-month forward-looking implied correlation for the NDX sits at just 0.177. To put that in perspective, we are hovering in the 25th percentile, far closer to the three-year low of 0.128 than the three-year high of 0.567. Meanwhile, 1-month trailing realized correlation is currently 0.158. One more consideration. Of the near-term upcoming catalysts, such as earnings, war, and midterms, to what extent does one think this would be idiosyncratic or more macro?

Basically, NDX or QQQ options are getting a highly favorable, "fair deal" to be long premium. You aren't overpaying for index volatility. The November midterms are looming, poised to inject a fresh dose of headline risk and sector rotation into the markets. Combine the elections with upcoming mega-cap tech earnings and shifting macroeconomic data, and the environment is ripe for outsized index moves.

So instead of buying QQQ outright and exposing your portfolio to severe downside risk, buying calls at current option prices is a smarter, capital-efficient way to stay long.

Disclosures: Tidal owns/holds all the securities mentioned in the article.

All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. This content is provided as part of our editorial output for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual's unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor.

THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR.