Endurance in Markets: Drawing Parallels Between Marathons and Nasdaq Outperformance

Marathons

This weekend 50,000+ runners will complete the 26.2-mile race around New York City. The course takes participants through all five boroughs and finishes at the south end of Central Park. A few Nasdaq colleagues and likely some readers will be competing. Whether you set a personal record or crawl across the line, finishing is a testament to perseverance. Sincere congratulations from a slightly-out-of-shape Chicago runner.

From my perspective, there’s meaningful crossover between endurance running and investing. It’s typically most difficult to get started but returns compound in both scenarios.

For example, the goal of $1 million in investable assets when you’re working your first job may seem inconceivable. Similarly, the idea of running for three, or four, or more hours against the backdrop of an often-sedentary American lifestyle strikes many as unattainable.

I’m reminded of the broadly applicable advice from Anne Lamott’s Bird by Bird that it’s important to break down potentially overwhelming tasks into smaller hurdles. Address them one at a time.

• Put away $50/week and two years later you’ve got more than $5000 to invest (assuming no interest).
• Set out to run a mile. You’re going to cover 5,280 feet and you’ll keep moving your feet until you’re done.

With longer distance running, it’s amazing how quickly you can go from covering 2 miles to 5 miles. With discipline, you’ll then be doing a 10 miler, half-marathon, and, eventually, crossing a finish line in Central Park, Chicago’s Grant Park, Boston’s Copley Square, or near Buckingham Palace.

Similarly, investing requires a base from which to build. You find ways to put aside more than $50/month and before long, your $5k is $20k. At each point along the way, you’re making choices about where to allocate capital based on your preferences and risk tolerance. That choice can be very consequential.

Despite nearly every broad-based equity index at, or near, all-time highs, there are very meaningful performance gaps depending on where capital is invested. Let’s assume a one-time $20k investment in an index-tracking vehicle was made a decade ago. For the sake of simplicity, let’s say your set of choices included the Russell 2000®, S&P 500®, and Nasdaq-100® indexes.

Source: YCharts

The hypothetical investment tracking the Russell 2000 has added about 160%. The “silver medalist,” S&P 500 has gained roughly 320%. Then there’s another wide gap because the NDX tracking asset increased by 570%. The dollar amounts above show the growth of $20k each over the past 10 years.

Weaving in our marathon analogy, NDX is akin to an elite distance runner. Its pace is different. In finance-speak, NDX index beta runs around 1.2 (pun intended). Sticking with our theme, if the S&P “ran” 10 miles, NDX would likely be at ~the 12-mile marker. Keep in mind that markets are bidirectional. When they’re moving lower, NDX is likely to do so with greater velocity. No marathon – or market – runs in a straight line.

Non-linear Paths

The past decade has been mostly positive for U.S. equities, but the path is never linear. Over the lookback period, there have been at least seven NDX drawdowns of 10% or more from highs. In four of those situations, the losses exceeded 20%. They include: 21.07% in December of 2018 (China devaluation/global slowdown), 28.03% in March of 2020 (Covid/pandemic), 35.5% in October of 2022 (inflation/interest rates), and April of this year when NDX settled off 21.55% from highs on tariff concerns.

Source: Portfolio Labs

Shifting our attention to the index option market, let’s think about the relative performance of specific out-of-the-money (OTM) options. In industry-speak, we’re evaluating option skew. In this case, we’re looking at the relationship between implied volatility (IV) for three-month NDX options with 25 deltas.

OTM NDX puts effectively always trade at some volatility premium when compared to similar OTM calls. This is a function of some ubiquitous equity index dynamics. For one, indexes tend to decline with greater velocity than they advance. Beyond that, there’s a pervasive supply/demand imbalance for OTM equity index options.

The marketplace is dominated by long equity holders, and their risk is always on the left tail (downside) of the distribution. As a result, there are far more “natural sellers” of OTM calls (yield/income) and “natural buyers” of OTM puts (protection).

On average, over the past year, three-month 25 delta puts have traded at about 37% volatility premium to comparable calls. As of late October, that gap has narrowed to 28%, which is among the lowest readings of the year.

That’s a lot of numbers in one paragraph and insufficient context. Let’s dive in to understand the implications. In simple terms, investors are paying less than usual for downside protection.

NDX January 30th (EOM) 2026 options (94 DTE):

• 25 delta calls (28k strike) = 18.14% implied volatility
• 25 delta puts (24.4k strike) = 23.2% implied volatility
• 23.2/18.14 = 1.279

(Data as of 10/28/2025)

The ratio of OTM implied volatility changes through time and it’s one way to view index skew. Here’s a look at 3M NDX 25 delta “skew” over the last year.

Source: Bloomberg & Nasdaq Index Options

So, what other information can we glean from this data?

One way to look at it is as the current estimate for future IV if NDX moves to different levels on the distribution curve. For example, if NDX moves from its current (spot market) value of ~26k up to 28k in the next few months, the market is expecting macro vol to decline from 20% (current 90D ATM IV) to 18.1% (IV on 28k strike). Alternatively, if NDX falls to 24,400, the market expects vol to increase to more than 23%.

NDX IV is a quintessentially mean reverting metric and many individual and institutional traders have views on whether macro volatility is likely to move higher or lower (or around what axis).

We can also use skew as a lens into the “relative cost of protection.” From that perspective, one could argue that 3-month protection may be ”cheap” relative to (recent) history. Of late, the “cheapening” of skew has been driven by earnings sentiment/AI, expectation of looser monetary policy/liquidity, seasonal tailwinds, and investor demand for upside exposure relative to downside protection.

The Nasdaq-100 Index has gained ~7.5% in twelve sessions and more than 50% from the April closing lows. The demand for umbrellas declines when it’s 75 degrees and sunny outside. The stock market’s current forecast is like being in San Diego.

The Finish Line

We set all sorts of “finishing lines” in life. We have short-, medium-, and longer-term goals. They may be professional, financial, physical, or mental. Long-term index performance overwhelmingly has favored NDX. There have been and will be periods of (meaningful) underperformance. That’s like life in so many ways.

Investors of all types have been moving into the index options marketplace to customize their portfolio exposures. If you’re concerned about tomorrow’s “finish line,” there’s a liquid NDX options marketplace to express that view.

Option users increasingly understand the various ways they can view information from this marketplace. Skew is just one measure to consider.

Like the marathoner who finds strength in the final mile, disciplined investors benefit most from endurance. Keep learning and run your own race.