Big Decline. Options Support Gone | Brent Kochuba on the Fragile Market Setup

Summary

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Excess Returns – Big Decline. Options Support Gone | Brent Kochuba on the Fragile Market Setup

Date: March 21, 2026
Hosts: Jack Forehand and guest Brent Kochuba (SpotGamma)

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Episode Overview

This episode of Excess Returns, featured in the OPEX Effect series, focuses on the recent pickup in market volatility triggered by ongoing geopolitical tensions, particularly the Iran war, and their impact on the derivatives and options market. Guest Brent Kochuba provides an in-depth exploration of how unprecedented options flows, volatility signals, and asset allocation trends are creating a fragile and potentially explosive market setup. The conversation covers technical factors in options expiry (OPEX), the implications of the J.P. Morgan collar trade, credit and commodity linkage, and practical implications for traders and long-term investors.

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Key Topics & Insights

1. Unusual Volatility Signals and the Options Market

• Vol Premium with Low Realized Volatility

  • Investors are heavily hedged, with the VIX at 25 but realized market movement still low (12%).
  • Quote: “It’s very unusual to get this big volume premium when the VIX is just at 25. So... people are hedged, but the underlying market’s just not moving very much.” (Brent, 01:23)
  • Risk: Market is primed for a “jump risk”— a sudden 2–5% equity decline that could spike the VIX to 40+.
  • Timestamps: [01:23], [02:56], [15:39], [53:30]

• Options Volume and New Expirations

  • Growth of Monday, Wednesday, Friday expirations (launched end of Jan) has contributed to elevated options volumes.
  • “Volumes continue to grow... these Monday, Wednesday, Friday expirations… are simmering in the markets.” (Brent, 06:43)
  • Timestamps: [06:43], [07:35], [41:18]

• Market Maker Hedging Dynamics

  • Market makers, not retail or traditional counterparties, are the critical “dynamic hedgers” whose actions move underlying stocks through proper or forced hedging adjustments.
  • “90% of options are bought and sold by market makers... there’s only about six or seven major ones.” (Brent, 07:47)
  • Timestamps: [07:47], [09:55]

2. OPEX Expiry Mechanisms and Market Turning Points

• Importance of OPEX (Options Expiration)

  • OPEX (third Friday) and VIX expiry windows show statistical evidence of price and volatility inflection points.
  • “Oftentimes the trend in the market... can change.” (Brent, 10:47)
  • Recent Example: Expiry led to clearing out of VIX calls, after which volatility spiked again.
  • “VIX magically comes down to 22... and then the VIX immediately goes up. It happens like this all the time.” (Brent, 24:45)
  • Timestamps: [10:47], [24:45], [25:59], [31:24]

• Effects of OPEX This Cycle

  • Unlike past cycles where clearing puts led to market rallies, ongoing uncertainty (war, credit) means protection gets rolled, not released—so downside “pressure stays on.”
  • “You can’t afford to not be hedged... you have to roll that [protection] to a new position.” (Brent, 16:26, 23:14)
  • Timestamps: [16:26], [23:14], [23:39]

3. Asset Allocation Shifts: From "Which Stock" to "Own Stocks at All?"

• The conversation has moved from which sectors to own (e.g., SaaS/software) to whether risk assets should be owned at all, or if investors should shift to commodities, rates, or cash.
• “This current market all of a sudden is about ‘do I own equities at all?’... It’s about asset allocation, not necessarily positioning inside of the equity space.” (Brent, 01:23, 33:36)
• Timestamps: [01:23], [33:36], [42:00]

4. Risk and Hedging Trends: Correlation, Jump-Scare Volatility, and the J.P. Morgan Collar

• Rising Correlation

  • Correlation is “warming up,” indicating flows out of equities as an asset class, a setup that historically precedes large, sharp sell-offs.
  • “When there’s a risk-off situation, it’s about not which stock do I own, it’s whether I want stocks at all.” (Brent, 41:53)
  • Timestamps: [41:53], [42:19], [43:27]

• J.P. Morgan Collar Trade as Market Magnet

  • The well-known J.P. Morgan (JPM) collar, which sets a put “floor” in the S&P, regularly supports the market near expiry—until it’s gone, which can open trapdoors to new lows.
  • “Once expiration happens… the reason for the market to hold to that level goes away.” (Brent, 28:03)
  • Recent history: similar setups in late March 2025.
  • Timestamps: [25:59], [28:03], [63:27]

• Practical Hedging

  • “Put-heavy” expiration; hedgers likely to keep their puts close to the market (not rolling far down and out) as long as uncertainty is high.
  • “Options expiration is going to remove some pressure but is not going to alleviate things like it normally would.” (Brent, 23:14)
  • Put fly strategies recommended for downside exposure—calls are very cheap, so may be useful if the news reverses and the market surges.
  • Timestamps: [23:14], [31:08], [46:54], [71:16]

5. Cross-Asset Linkages: Oil, Credit, and Volatility

• Oil as the Market Driver

  • Current regime: oil, VIX, and equity vol are tightly, causally linked. Oil spikes mean inflation risk, higher rates, and likely credit distress. “Correlation is causation here.” (Brent, 56:38)
  • If oil goes to $150, VIX likely goes to 80. (Brent, 56:15)
  • Timestamps: [56:38], [58:47], [59:06]

• Breakdown of Traditional 60/40 Hedging

  • Historically, bonds offset equity risk (negative correlation), but oil-driven inflation breaks this hedge.
  • “Can you use bonds as a hedge? Right now, I would argue, probably not.” (Brent, 49:33)
  • Timestamps: [47:28], [49:33]

• Credit Risk and Macroeconomic Fragility

  • Credit events tend to drive the biggest volatility spikes.
  • Conspiracy Corner Analogy: Rising oil precedes massive equity/credit unwind (as in the GFC).
  • “You got kind of go like, okay, maybe this doesn’t repeat, but it feels like there’s some rhyming again.” (Brent, 69:03)
  • Timestamps: [65:39], [68:13], [69:03]

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Notable Quotes & Memorable Moments

• On Market’s Jump Risk:
  “At some point we finally get that 2, 3, 4, 5% equity market drawdown, volume starts to realize and then suddenly the VIX just goes... and then it goes to 40.”
  (Brent, 01:23)

• On OPEX Expiry Effects:
  “It happens like this all the time, right? This is not like a one-off event. It’s sort of like the max pain idea—where do traders feel the most pain? Where their options expire worthless.”
  (Brent, 24:45)

• On Asset Allocation Paradigm Shift:
  “It’s no longer ‘is Salesforce a good buy?’ ... It’s like, do I own stocks at all now, or do I own bonds, cash? What do I do?”
  (Brent, 21:42)

• On Current Hedging Practice:
  “Because of the Iran and this obvious, obvious known unknowns, we have to maintain better risk... that keeps the hedge pressure on.”
  (Brent, 23:14)

• On Cheap Calls as Event Risk:
  “Calls are extremely cheap in this environment... maybe you just want to add some of this right tail risk.”
  (Brent, 44:21)

• Conspiracy Corner—Oil and Credit:
  “If oil spikes like it does and [interest] rates spike... does the higher oil sort of take that little molehill, turn it into a mountain?”
  (Brent, 65:39)

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Timestamps for Key Segments

• 01:23 – Explanation of unusual volatility premium and jump risk
• 02:56 – Investors hedged despite low realized volatility; market not moving (yet)
• 06:43 – Options volume and new expiry (Monday, Wednesday, Friday)
• 07:47 – Who moves the market in options (market maker hedging)
• 10:47 – OPEX and market turning points
• 15:39 – Gamma index, predicting volatility; negative gamma risk
• 16:26 – Why hedging pressure remains after expiry in current market
• 23:14 – Put-heavy expiration, rolling risk tighter than normal
• 24:45 – VIX expiry and “max pain”; VIX moves after calls expire
• 28:03 – JP Morgan collar trade and market “floor” removal post-expiry
• 31:08 – Preferred strategies: put flies, cheap calls
• 41:53 – Correlation spikes: asset allocation risk-off
• 46:54 – Don’t be short calls with “right tail” event risk (Trump deal/ceasefire)
• 49:33 – 60/40 breakdown; can you hedge with bonds?
• 53:30 – VIX versus realized vol: awaiting a “jump” event
• 56:38 – Oil and VIX correlation: correlation IS causation now
• 65:39 – Brent’s Conspiracy Corner: oil spike before GFC and current similarities
• 69:03 – Credit spreads, fragility, and why not to be short vol

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Actionable Takeaways for Investors

• Exercise Caution: With options expensive, rolling put protection not easing, and tail risks (geopolitics, credit, oil) intact, defensive positioning and lower exposure are warranted.
• Watch Expiry Windows: Key pressures may lift around March 31st (OPEX/quarterly/JP Morgan collar) but only if external shocks abate.
• Consider Tail Hedges: Volatility is cheap on the call side—consider cheap out-of-the-money calls for sudden, regime-shifting positive news.
• Don’t Rely Solely on Bonds for Hedging: The traditional 60/40 no longer applies in oil/inflation shocks.
• Monitor Cross-Asset Correlations: Oil, credit, and equities are now tightly linked in risk transmission.
• Follow Options Positioning: Market extremes (high puts, cheap calls, heavy correlation) signal jump risk in either direction.

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Final Thoughts

The episode highlights a uniquely precarious moment for markets, where traditional hedging mechanisms are breaking down, and both technical and macro flows point toward the real risk of sudden, large market moves—either as a result of negative news (credit event, further escalation) or a peace deal/news reversal. The recommendation: maintain caution, monitor options, and stay nimble.

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“I think this is a time for caution here as opposed to sort of betting on some type of immediate sharp market rally.”
(Brent Kochuba, 71:16)

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Transcript

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[Podcast Host]

picked up in the wake of the Iran war. In times like these, we always find it valuable to talk to our friend Brent Kachuba to get a behind the scenes look at the options market and the flows driving the market. Jack was able to do that yesterday for our monthly podcast, the OPEX Effect. If you are interested in looking at the current market through the lens of the flows driving it, I think you will find this discussion interesting and valuable. We have included this episode in the Excess Returns feed. If you want to keep receiving new episodes, you can subscribe to the OPEX Effect on all major podcast platforms using the links in this episode. Description thank you, thank you for listening. We hope you enjoy the show.

[Brent Kachuba]

It's very unusual to get this big volume premium when the Vix is just at 25. So what is that saying? People are hedged, but the underlying market's just not moving very much. And so what's unusual here is not the hedging, I would argue, not the Vix 22. What's more unusual is the fact that we're not realizing any any real market movement. And my concern with this is that I think at some point we finally get that 2, 3, 4 5% equity market drawdown volume starts to realize and then suddenly the Vix just goes okay, great, and then it goes to 40. If you knew that these options flows were really kind of in charge here at this very sort of significant moment. These options in expiration, it explains a lot of those flows. This current market all of a sudden is about do I own equities at all? Do I need to go on commodities? Do I need to own rates? Do I just go cash? Right? It's about Asset allocation, not necessarily positioning inside of the equity space. It's a known that something could break. We don't know what it would be. So we have to hedge that. You can't hedge out the short term options.

[Jack]

So, Bryn, I think it's fair to say action is picking up in the market here.

[Brent Kachuba]

That's right. After months of being trapped in a range and things being kind of boring, it's. It's certainly getting spicy out there in. In wrong ways. I don't like war and things like that, but markets are certainly getting quite interesting and I want to say scary, but there's a couple of things out there which don't feel great. Yeah.

[Jack]

And we've been doing behind for like a few episodes here. We've been doing like things brewing behind the scenes, but the market's kind of calm. And so it's still, maybe you could, you could argue relatively calm relative to what's going on. But certainly, you know, the volatility has come back in.

[Brent Kachuba]

Yeah. And those signals are very, very strange. We're going to talk a lot today about volume premium, for example, which is really wide, which tells us that investors are hedging for something. Right. And it's one of the bigger volume premiums ever in terms of the VIX over what we call realized volatility, S and P or how much the S and P has been moving. So there's a ton of premium there, which tells us people are hedging, but the overall level of volatility is still pretty light. Right. So normally if the VIX was at say 80, you would see a big fat volume premium. Right. Because the Vix is at 80. But in this case, the Vix is only about 25. But there's still a ton of volume premium, which tells us that even though people are worried, the underlying market really hasn't started to move yet. And that's one of the things I think we need to be worried about because I think at some point we're going to get that jump right where all of a sudden we get that big equity spill. And that's one of the things I'm really worried about as we head into optics.

[Jack]

Yeah. And it's interesting and we'll get into it in the presentation. But on, on one side, I saw you've been writing on Twitter, like, there's at least some parallels to what we saw with COVID in terms of, like, there's this bad news, but the market's not moving, even though it started moving a little bit now. But then I Also saw like, I think it was Noel Smith who was writing on Twitter. It's like there's this opposite side which is like we've hit the market with everything we can hit it with and it's not going down. So it's like a sign of resilience in the market. So it's interesting to think like on both sides of that argument.

[Brent Kachuba]

Yeah. And I think that the COVID analogy is an interesting one. We're going to talk about that. There's a new segment I want to try here, Jack, called Brent's Conspiracy Corner. Well, we'll talk about.

[Jack]

Oh, nice. I like that.

[Brent Kachuba]

The 2008 crisis. Yes. I thought people liked that. And also February and March of last year is another really interesting analogy where you remember with the tariff tantrum, right. The market seemed to sort of spill over and into March and then all of a sudden at March, March 31st expiration into April, we just had this like, we just evacuated to the downside. Right. And VIX went crazy and the financial system seemed to almost seize up. And that was sort of Trump induced, I would argue, based on tweeting about, you know, tariff policy or whatever. But there's a lot of interesting things that happen from this. February stable March gets kind of crashy type. Type time frame. Right. Seasonality of it, which I think is quite of interesting. So I'm not quite in this camp. Like we've thrown everything at it and the market's not quite breaking. I do think it's sort of positions are going to reset here and that may loosen things up for that type of, you know, jump risk moment again.

[Jack]

And if the. I like the conspiracy corner too because if we ever decide to go down the, the bad areas of YouTube, you know, the bearish areas and all that, like, we're ready to go here. You, you and I are dialed up with that.

[Brent Kachuba]

Yeah. The analogy I'm going to bring up at the end of the presentation, it's a fun one. I'm sure macro guys are going to throw their shoes at their screen over what I bring up here, but it's just kind of fun to talk about. It's an interesting analogy. And you know, maybe people in the comments will tell me, hey, Bernie, you're an idiot, or actually you just sort of ignorantly stumbled on something kind of interesting. So we'll find out.

[Jack]

Well, one of the things I've learned recently is that the YouTube algorithm now is valuing comments more so now I feel, I feel completely differently about all the negative comments now, Brent, I want to now I'm like, bring them on. We attack me. Attack Brent. Like, bring it on. We want to see it.

[Brent Kachuba]

Oh, I didn't know there were positive comments. I think so it's like, negative comments are coming, right?

[Jack]

Yeah. I don't think YouTube distinguishes between the two, so. But you're right, the negative comments tend to be a little bit bigger. But not on this. By the way, people love the OPEX effect. We actually had people on Twitter asking, like, why? We're a little. We're a week late this time. So people are asking, like, where's the OPEX effect? So I guess that's good that we at least had one person who is looking forward to this.

[Brent Kachuba]

That's great. I love it. Yeah. Thanks to my mom for posting those nice things on Twitter.

[Jack]

So my mom has never watched this. Yours has it either. They'd be like, what are you two talking about? If they were to watch it, I would sue.

[Brent Kachuba]

That's funny.

[Jack]

So, yeah, as we get into this, like, we always start with option volume, because since COVID option volume has spiked a ton. And that plays into what we're going to talk about in the rest of this podcast.

[Brent Kachuba]

Yeah. And, Jack, one of the things that just recently launched was obviously the Monday, Friday expirations. That was the newest development. So volumes continue to grow. Those Monday, Wednesday, Friday expirations you see there in the bottom were launched at the end of January. That's still kind of the latest thing that's simmering here in the markets. And so, again, these volumes keep growing. And I think that what's interesting in this moment here is we're going to start talking more about volatility and the impact of the volatility complex, meaning if Vix goes to 50. Right. Then that really starts to tell you that the impact of options are growing. Right. Cause options are about convexity. And so when volume spikes, I think options flows become even more impactful because the value of options increase quite a bit. So we have big volume if volume spikes and like, Vix goes to 50 or so. And that's just telling you that options are maybe even a larger driver to the markets.

[Jack]

Yeah. And on this next slide, I saw you had to correct someone on Twitter, I believe it was yesterday, about this. But there's this idea that when you're trading options, when people are buying options, the person on the other side of the trade is not necessarily someone who has the opposite opinion of you.

[Brent Kachuba]

Yeah. And it was kind of a funny thing because there's a funnily named Twitter hand out there who's, you know, in the business and a very smart person. He was saying, you know, the joke was that if someone that. That the people get confused oftentimes as to who counterparties are. And the idea that if, you know, people are buying a whole bunch of AMC calls, market makers are short those calls, right? And so that should mean that if the stock goes up, market makers have to buy stock in order to hedge. I think we're all kind of aware of those type of dynamics. And then he was sort of making this joke about the fact that people will say, well, if everyone sells calls, then market makers still have to buy stock, and was sort of just making this sort of, you know, joke, I guess, about the fact that people confuse these topics oftentimes. And the. And the underlying theme here is that, look, when someone is. If you're buying calls, Jack, or selling calls, Jack, there's somebody on the other side that's doing the opposite, right? And why we care about this is because we want to know who the dynamic hedger is. And why does that matter? Because it's dynamic hedgers that impact the market. So what do I mean by that, Jack? If you buy one call and I sell you that call and we just both hold to expiration, there's no hedging flow involved with that, then there's no, technically no market impact, right? We squared the risk off between the two of each, between ourselves. And, you know, the market impact of that would be fairly mitigated. However, if you, Jack, buy a call for me, I'm the market maker and I sell it to you. I have to buy and sell shares of stock in order to hedge that. Right? That's part of what I have to do as an entity, as a. As. As part of my business operation. And so it's the trading of those underlying shares that can impact the market. So who holds the. The risk? Right. Both from the initiator and the counterparty is really key to understanding here. And 90% of options are bought and sold by market makers, meaning 90% of the time, if you go trade, you're trading against a market maker. And they're really large. And there's not that many of them, right. There's only about seven, I would say, maybe six really large market makers. Citadel, Susquehannas, et cetera. So that is the transmission mechanism, right? The trading or hedging of the underlying shares that takes the options flows and brings it to be impactful to the underlying stocks that we're trading.

[Jack]

And on this next slide, it's Important to understand this is not a static thing like once this hedging process is started, now prices are changing, time is passing, and these hedges have to be adjusted over time.

[Brent Kachuba]

That's exactly right. So the minute you trade, let's say I have to buy 50 shares of stock to hedge your trade. Well, if the underlying stock moves, the delta or the hedge ratio changes just based on how the stock is moving. So I'd have to adjust my shares because of that. Also, if implied volatility goes up and down, so VIX goes up and down, I have to adjust my share count as well. And also just as time passes, so if I'm hedged today, the stock doesn't move at all, but a couple days pass, I have to adjust my hedge ratio. Right. So the hedging is constantly changing across a bunch of different dynamics.

[Jack]

And then on this next slide. This is why we do this on OPEX Week, is we get to a point where a lot of this stuff expires and that sort of changes the dynamics of all this. And it sometimes can be turning points for the market.

[Brent Kachuba]

Yeah. And it seems like it's more off of the turning point now, which is kind of interesting. We generally watch the third Friday as the biggest expiration cycle. And what happens there is positions build up on the third Friday of the month and then the hedges associated with those positions build up and then all of a sudden that opex, which in this case is on Friday, hits and positions are cleared out. And then oftentimes the trend in the market, both in terms of price trend as well as volatility, can change. And there's a whole bunch of evidence for this statistically shown that if VIX expiration is part of this OPEX window. So VIX expiration was Wednesday, which was yesterday, as we record here on Thursday. That opens this OPEX window that's often talked about. And so there's statistical evidence that markets tends to shift again price. So if we're trending up, we tend to sell off, or vice versa, but also volatility, which is a critical thing to understand. So generally, if volume is spiking into opex, it tends to sell off after. Now, that's interesting here because we have a relatively high volatility market, but it's tricky to say that volume is going to sell off here because of the Iran situation, which we're going to dig into. Ever feel like your brain just won't click? Onnit Alpha Brain is a daily supplement engineered to support memory, focus and mental speech, made with science Backed ingredients Onnit Alpha Brain helps you lock in, tune out distractions and stay sharp. See what your brain can really do. Visit onnit.com and shop alphabrain to unlock your next level. That's O N N I-t.com security program on spreadsheets. New regulations piling up and audit dread. It's time for Vanta. Vanta automates security and compliance, brings evidence into one place and cuts audit prep by 82%. Less manual work, clearer visibility, faster deals, zero chaos. Call it compliance or call it compliance.

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[Brent Kachuba]

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[Jack]

yeah, and I saw it didn't like Vic spiked a pretty good amount yesterday, right?

[Brent Kachuba]

It's actually very interesting. We have a slide about this, but we, we were looking for a market rally in this case because we thought that volume would contract into expiration and it certainly did. We have again a slide we'll talk about on this. And we thought that would lead to a market rally. I thought we'd get into 6,800. We're not quite there. We got to 6,750. But what's funny about it is on Twitter is people like, how can the market be rallying? Don't they know Iran's going, you know, not very well for us and oil spike and all sorts of stuff. And it's like you go, okay, brief bounce in this market. I understand what's happening here. There's some flows that have to get cleared up and then after that maybe we loosen things up, right? Because those VIX positions which were such a good hedge to this market, get cleared out and then suddenly the hedge exposure is at a much different level, right? A much higher relative level. And that may allow for more downside to come in here.

[Jack]

And I'm sure when you compound it with the news events, it makes it even harder. Like, you know, we could blow up that island that has all of Iran's energy, you know, oil transmission tomorrow. And like this changes the market completely. So it's like you've got these behind the scenes effects, but you've also got these real world events that are changing on a daily basis.

[Brent Kachuba]

It's so true. And I think after February opex, we were talking about thinking that there could be a nice market rally, for example, and we started to rally and then the market fell apart. And of course some guy on Twitter is like, great call. And you're like, well, the Iranian war started on March 3, so it's like I could be as bullish as you want. Then we start soft, World War 3 and the market goes down. You're like, see, you're, you know, you're an idiot, Brent. It's like, well, I don't know what you're supposed to do in those situations, right? You can, you can plan. And then obviously in these, in these situations where the geopolitical tension is both somewhat unexpected and also obviously it's very strenuous, I would say, you know, like the Venezuela operation was this one day, in and out. And I was like, okay, it was a speed month, right? And, and now clearly this is, is more, much more of a quagmire. So. But to the point of volatility, on this chart here, what you see is delta is the change of volatility. So typically what happens is into expiration, right? On five day windows or 10 day windows, you see volatility contract into expiration, right? And then after volume tends to expand that, if this chart makes sense. So what this is showing you is there's statistical evidence again for volatility. That is the movement of the market to contract into options expiration and then pop after. And so to this point of the conversation we're having, we did get some relative volume contraction, I'm going to argue, into expiration, which was yesterday. And that can be a little bit scary in this situation because if that was the volume contraction, which I'm going to show you in a minute, then it's going to be maybe a little bit scary coming out of this. And that's a real risk that, that we're looking at here.

[Jack]

So as we move this next slide, this is the idea of we can use gamma to predict volatility going forward. And we're starting to see, as we move to the left here, we're starting to see more and more predicted volatility, right?

[Brent Kachuba]

That's right. And so the gamma index is measured every night and then it forecasts the next day volatility. And what you see here is the more, the lower we go in this gamma index, which is referred to as kind of negative gamma, then forward one day, volatility tends to be higher. There's some evidence that this also is on larger timeframes. So basically what we're saying here is that the SPX index gamma is negative and that is going to drive price, right? That's going to drive markets lower. Because if the market goes lower, market makers have to sell stocks. If the market rallies, they got to buy stock. And when they're doing that they're pushing the market as the market trends in a certain direction. And so that can really exacerbate volatility in a significant way.

[Jack]

So I know in past times when this has been to the left and we've had high predicted volatility, when the, when OPEX cleared, it actually went to the right here. Is that what you expect here or is this a different situation?

[Brent Kachuba]

This is a different situation because normally what would happen is if we were crashing into an options expiration, you may sell your puts, right Jack and then say okay, like risk is kind of over. We're sort of clearing, we had a nice sell off. I'm going to close these puts up. In this situation you can't afford to not be hedged because of, to the point of the title here, right of the presentation, the known unknowns. The known unknown is the Iran situation. We all know that the Iran situation is not going very well right now. And you can't hedge that with a short term option. Right. You need to own a 1 month, 2 month, 3 month whatever put or VIX call or whatever it is to hedge yourself. Same thing with the credit market. Credit market's getting a little weird right now. Right. We don't know if something could break. It's a known that something could break. We don't know what it would be. So we have to hedge that. You can't hedge out the short term option. So what does that mean? Yes, we're going to lose a bunch of put protection here at OPEX and with VIX X but you have to roll that to a new position. You can't sort of afford to sort of let that protection lapse. And so I think that keeps the pressure on in a unique way in this case. And so what does that mean now we have the market sort of crashing ish. Right. It's sort of like to the point of what, what we were talking about before, it's like it feels like it should break but it's not. And I think it's the positioning that's been holding in it, holding in there. And if that positioning sort of wears away or moves away, then maybe realized volatility could really start to spike. In other words, instead of having, if you look at the data, we have about 12% realized volume over the last month. Right. That equates to about 75 basis points of movement in the S and P every day. Well the average in the S and p is like 68 basis points over time. So we're just moving at a very average amount if we have a 2, 3% sell off, that's like 30% realized fall, right. That's a big spike. And that would mean that the VIX or implied volatility would spike in kind. So then we start talking about hey, if we get one or two sell offs is about 2%. Then I suddenly think you see the VIX go to like 35 or 40, you know, kind of like that. That's the jump risk that I'm talking about. And that's I think the, the risk in this market at this moment.

[Jack]

So we've talked in the past about people using zero dte a lot. I would assume like you said before, like with something like this, you're going to see people using longer term options for hedging. Right. And you'll see that reflected, I would assume in the VIX going up.

[Brent Kachuba]

Right? Yeah. And I've seen anecdotal evidence of zero DTE volume and the flow subsiding when these known unknowns come up. And that's to your point, Jack, because you can't hedge a, a Iran situation or a possible credit event when you don't know the timing of that event. You can't hedge that with the zero dte. Now you can make the argument like well, market open today, nothing really accelerated in Iran. So for the rest of the day I'm okay, so you could trade some zero dte. But what I've seen again anecdotally, cause there's not a ton of data around this that when you get these unknown events like a bank crisis, a credit crisis, a war situation like this, a hot war situation like this, 0 DTES back away and it becomes more about hedging. To Your point, about 1 month, 2 month, 3 month options owning some volatility that can cover you on a day to day basis as opposed to intraday.

[Jack]

So as we get into this expiration, the first takeaway for me is it does seem a little bit foot heavy. But what are the biggest takeaways for you?

[Brent Kachuba]

Yeah, number one, if you don't know the clause, you missed our presentation. The clause got a lot of love. So this is a, this is a large claw expiration which simply one of the bigger expirations you'll find it's not the biggest around, but quarterly expirations tend to be quite large. I have a chart on this in a second. But what you take from this to your point Jack, is that it's a put heavy expiration generally. For example on the single stock side, if you look into January, February, it was much more 70 to 80% call weighted. So right now we're about 50, 50, which is pretty significant for single stocks. You can also see that the S and P, which is the SPX and the spy, very put heavy, you know, not extreme, but put heavy, right? And again to the point of the market remaining pretty contained here. If we had some of those two, 3% down days and you would see that put positioning really grow, right? And that would tell you that the puts are leaning much more on the market right now. They're not. And then lastly this index is ndx, Russell primarily you can see obviously a lot of puts in that, in that space as well. So when you look at this data, if this is new to you, say well, it doesn't look terribly skewed towards putting on a relative basis is actually a pretty heavy market. And then another thing was point out is just look at the size of the S and P, right? So spiders in the S and P in terms of delta notional. Now delta notional stock equivalent. You know, it's just so much bigger than the rest of the market. We were talking about the derivatives market and how significant that is. And so, you know, it was only a month ago, Jack, we were talking about the software apocalypse, right? And the joke with, with the lobster clause was, hey, you know, this is the SaaS apocalypse. Uh, we're in trouble here because the software stocks are going down. Me and you, Jack, we're gonna lose our, our jobs here because AI is gonna replace us. And so the joke with the clause is this is a very large expiration, so it gets the large claw marking. But I think that that point is significant because we're not talking about software stocks all of a sudden anymore, right? Excuse me, we're talking about oil commodities rates now, right? It's no longer is CRM or Salesforce a good buy. Should I buy the dip in these software stocks? That conversation is gone, right? It's like, do I own stocks at all now or do I own bonds, cash? What do I do? This topic is going to come again, come up again in a couple of slides here. But I just wanted to make a note of, of how the dynamics have changed so much in just a month.

[Jack]

Is there anything else in here in terms of the difference between S and P? Single stock index ETFs. Is there anything else here that you think is notable that we should point out?

[Brent Kachuba]

There are a lot of interesting signals in positioning and outside of the fact that we're a little bit put heavy, we show this Pretty often you're going to see likely on Twitter, some charts come out from Goldman and the like which will talk about a 7, $8 trillion OpEx. And so the difference here, just to make clear what I'm doing is I'm measuring the stock equivalent value, right? And that's why I look at the Delta notional, what those other charts will do, the six, $7 billion expiration charts, right? They say one contract is equal to 100 shares of stock. And that is wrong, right? Because if you have a call option that is 20% of the money that expires tomorrow, that has zero value. And so what I do here in the Delta terms is I'm measuring it in terms of stock value. I'm giving it a weighting and so that makes a much more reasonable estimation of, of impact. And so if we just forward this quickly, once through here, you could see across these different sectors or different asset types, I should say, how big this expiration is. And so these are quarterly expirations, these big spikes. And so you can see this is a, again a decent size expiration, certainly one of the larger ones we've had, but it's not a, you know, the all time record expiration across these different categories. So significant expiration, but not the largest certainly of the ever.

[Jack]

In terms of this being put heavy is the important thing here to think about, like, are people going to put the puts back on? Because you know, you could argue like put heavy expirations, sometimes they bottom the market. But I think in this case with like this long term risk here of the war, we would expect people to put the puts back on. Is that right?

[Brent Kachuba]

That's 100%. Right. And so normally what you would do is you would roll options down and out. What does that mean? I have a put, it's in the money. Great. I made some money on my hedge. I close that and I would roll it out to the next month and I would roll it down in price a lot, right. What does that do for me? I collect the premium on my hedge. It was a good hedge. Great. And I rolled to something cheaper. So I pocket some of that hedge value and I put a new hedge on, maybe 5% down a month out. In this case with the Iran war situation, the credit situation, I instead of me maybe rolling it down 5 to 10%, I may only roll that put, let's say 2% down, right. Because I'm really worried about the downside in this market here as an example. And so what that does is it keeps the hedge pressure on because if I take an expensive put and I buy some wingy really far out of the money put, it has less hedge sensitivity, right. And so that has less I would argue impact from a hedging perspective as a result. But because of the Iran and this obvious, obvious known unknowns, right. We have to maintain better risk in this environment from a hedging perspective and that keeps, I think the sensitivity of the options position is quite high. So to your point Jack, OPEX is going to remove some pressure but it is not going to alleviate things like it normally would. And I have a chart in here of the expirations, I have to pull that up Jack, in a second here but showing that options expirations generally make market lows.

[Jack]

So on this next slide we're seeing what you were talking about before, which is the spike in the VIX like pretty tied to the VIX expiration I guess.

[Brent Kachuba]

Yeah, that's exactly right. And so what's funny about this in the short term to the point of volume contraction leading to a market rally is this is just the last month in the vix. And so you could see with the Iran war here around the beginning of March, VIX spiked quite a bit up to 35. It's come in. But this exact moment right here, Vix settles at 9:30 in the morning on Wednesday. That was the two week low as you can see right post Iran war basically low was exactly at VIX expiration. So if cash open on Wednesday and after that volume spiked. Now why is that? Because there was a bunch of VIX calls that hedgers had, right? Buy side owned VIX calls. Market makers were short them primarily from roughly the 22 strike in Vix above. So what happens? VIX magically comes down to 22. All those calls expire worthless rate at expiration and then the VIX immediately goes up. It happens like this all the time, right? This is not like a one off event. It's sort of like the max pain idea, right? Where do traders feel the most pain? Well it's where their options expire worthless and then that's where the market makers make all their money. So it sounds like shenanigans and it kind of shenanigans I guess I will just say but you see this stuff happen all the time.

[Jack]

So yeah, we also we're coming to the end of the quarter here. We've got the GPU or in collar that's going to have to be reset. You've got your event chart here. We've got a lot of stuff Going on. So what are you seeing here?

[Brent Kachuba]

Yeah, two things. Number one, we just talked about how the options market can often mark short term lows or highs in the market, sometimes even more significant moments. Right? But just to, just to run that back, you look at November options expiration here, right? We crash into November options expiration, market bounces and fomc, there's a little weakness. Then we bounce at December expiration, right? You can see January here, huge gap down at opex, we rally a little low here at February opex. So you can see how these cycles come into play. And back to the point of the original conversation, normally when the market crashes or drops significantly into an expiration, it charges up volatility, charges up puts. And you would expect that that clearing of that, and statistically there's evidence for this, you would, you would expect that the clearing of those puts, the VIX calls, etc that are heavy and expensive would lead to a market rally. But because of the Iran situation, it's not so clear that that can be the case here. Right. And so the reason I bring that up is that number one, I don't expect the normal VIX expiration, March options expiration bounce when we have this big sell off. But the second thing we want to make note of which is significant is a lot of people are gonna be talking about the JP Morgan put position. This is the JP Morgan collar trade that's very well known. You can look in spot gain. Well at JP Morgan collar, we have a whole write up on this, but that position's at 64.75 and that expires on 331. And this position has come into play most recently in April of last year where we were bouncing. And I have a chart on this to show you we're bouncing along this level. And if you remember a few moments ago, I was talking about the fact that options expiration may be kind of containing or supporting the market. It feels like that could be the case here where maybe we leak a little bit lower into opex to the 6500 level. But once quarterly expiration happens, which is again 330, and that position goes away and that may sort of open the door for another leg down. And that's something that I'm really watching here through opex.

[Jack]

So what is the impact of the JT Morgan collar right now like we've talked about, when we get near the strikes, they can kind of be a magnet, they can kind of pull us into the strikes. Like as we head into expiration, what has been the impact of that.

[Brent Kachuba]

Yeah. So at the moment, I would say it's been pretty light. And the other thing is that the dealers that own this position, or short this position, so what it is, is J.P. morgan, it's a big hedge fund. They own puts as part of a collar trade. So JP Morgan is long 6,475 puts, about 40,000 of them, and the dealer is short those. Right? So what the dealer does is a ton of hedging around this and kind of to the point of this VIX chart where we happen to just magically make a low of the VIX that kills all the VIX calls, right? We've seen time and time again where the put never goes in the money, or it will go in the money before expiration, but then magically moves back to the strike so that those puts essentially expire worthless. And actually, if you go back and look over time, these puts never pay off because somehow the market magically rallies back into that strike. And that's because there's a lot of hedging flow. There's a lot of other trades around this level, right, that help to support the market in this zone. So even though the actual JP Morgan position is long and the dealer is short, the dealer has a whole bunch of other positions around it which help to offset that risk. So what it ends up being is almost like this intersection, right, of time and price, where there's a whole bunch of positions there. It becomes a sort of sticky support zone. And then once expiration happens in 331, all of the reason for the market to hold to that level goes away, right, because all those positions are gone. J.P. morgan rolls to a new position which is typically up or down about 3 to 5%. And then suddenly the market can move a lot more freely. I'm going to show you some evidence of this from April here into the end of the presentation as well.

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[Jack]

well, we're recording Thursday morning, the 19th, and I just got my market open thing. We're recording at 9:30 and it's Dow down 300 points. So looks like we're continuing to the downside for now.

[Brent Kachuba]

Yeah, it certainly does look like that. And again, I would be really watching the 6500. Who knows, maybe by the time we talk about this or releases, Jeff, we may be already there, but then that would be, I think, a pretty good support area where we may get a little bounce with Friday's options expiration and then kind of revisit that level into 331. But this is a big strike zone to watch over the next 10 days.

[Jack]

And it's interesting when you, when you release these during these volatile times. Like, although this will come out 24 hours after we do it, like the world could be different by the time people are seeing us on Friday morning. Like things could have changed already.

[Brent Kachuba]

Yeah. And we're going to bake in again to the point of giving some forward looks here. We're going to bake in what the risks are and what the trades. I, I think that we shall be watching to this point while we're on this slide. I like put flies. Ford 331 owning the 650 Spider puts or the 6500 SPX puts. And then you can offset that risk by selling two at a lower strike. So if you look up put flies, you can read more about those. But that's the type of trade I like in this environment to hedge this kind of downside.

[Jack]

Move some someday we're live stream this thing, Brent, and you're gonna have to like, show me how to do a put fly. I'll do. I'll do a put fly live in the podcast because I would have no idea how to do that. But we'll do that later on, I guess. But before we go forward, we do like to always look back and here's what we talked about in the February Optus.

[Brent Kachuba]

Yeah. And everything was about number one. Puts were bid. If you remember talking about how interesting it was, because put SKU is really quite elevated. But this was during this kind of SaaS apocalypse. And if you remember, Citrini had launched this blog post, article, whatever you want to call it, about the end of the world. And that thing went, I mean, mega viral. Right. And that AI SaaS complex was just really getting crushed. And it was interesting because the put SKU was really very elevated. What does that mean? People are into puts already to the point of what Noel's talking about. You could argue that it was a pretty well hedged market into this situation. And maybe that's why the movement has been pretty contained, so puts were quite bid. We were talking a lot about this chart which again, most of these assets were on the left side of this chart which tells us that people are favoring puts already. You can see interesting. Energy was pretty well bid into February options expiration before the whole Iran situation. Iran situation kicked off, right? Energy was already bid and tlt, which is the long bond, was starting to get a bit that's been dashed now because obviously higher oil is implying inflation, right? Which is going to imply higher rates are needed. But the point here was that we were already sort of skewed to the put side. People weren't really interested. But note here the sort of scattering of these data plots, right? What do I mean by that? Like spiders are lower left here, Q's are a little lower, semi's a little higher. It's not the, the spaces are pretty scattered. And this line is the movement of these over the last five days, right? And again this was going to the February opex. But what I think is interesting about this chart is just remember how scattered these stock assets are in particular, right? Spiders, cues, et cetera, they're all pretty disjointed. It's sort in the same region, but again it's fairly disjointed. We were talking about correlation, right? Correlation was starting to warm up. What do I mean by that? We're going to talk here in a moment. We've already touched on this about the idea that when there's a risk off situation, right? It's about not do I, which stock do I own, do I worry about owning software stocks, Do I want to own the memory chip? Like what do I do? Right? In the equity space, this current market all of a sudden is about do I own equities at all? Do I need to go on commodities, Do I need to own rates, do I just go cash? Right. It's about asset allocation, not necessarily positioning inside of the equity space. The reason that this matters is because when people go risk off in stock, they dump their stocks and then they go buy something else. And then correlation spikes to the point of the April spike. Now correlation spiking generally means that volume spikes as well, right? And so that's why we watch this so much. But correlation, this is from February was already starting to warm up, as you can see here. And now we're significantly higher on this metric, which is the core 1M metric. And that just is simply saying that people are now worried about owning stocks at all, which is significant and meaningful, right? Because These are the situations where you get these big pukey downside moves. You know the type of thing I joke about is like, well, Wikipedia will have to make a note of this. Right. If Vix goes over 30, you'll find an entry about that in Wikipedia. If Vix is at 20, you typically won't find a mention of it in something like that. Right. It's not that important yet.

[Jack]

So on the next slide, we were talking about this last, last month, this idea of whether dispersion was peaking.

[Brent Kachuba]

Yeah. And the dispersion trade, this is from Nomura, is this idea that assets or stocks in generally weren't moving relatively index together. And back to this point of correlation, this is sort of saying that everyone's sort of like, oh I'm, you know, I don't care about software stocks or I don't, I want to buy that dip and I need to own memory stocks. Like which stock do I own? And the movement of those individual stocks versus the index was really unusual, which this chart is showing. This is I think no longer to be the case because what happens is VOL spikes. People just sell all stocks correlation spikes. The dispersion comes down because equities are just being treated as an asset class on the whole. And then you start to see a real risk off move. And I think that's the thing that we have to worry about.

[Jack]

What's interesting with that chart too is I believe like we, I believe Noel Smith had tweeted that and we talked about it last time and like the forward returns for the market were not good. Right. Of under those circumstances.

[Brent Kachuba]

Yeah. Generally speaking they're, they're, they're not great. And what's kind of interesting is there was, there's indicators with like VX going over a certain level that actually had positive forward returns. Right. And so there's a bunch of sort of mixed signals in here in terms of historically how these volatility signals relate to each other. What's hard about this moment is that I think if we didn't have this exogenous risk of the Iran situation, then we could have much more sort of normal behaviors I think in this moment. But what's happening now is not normal at all. Back to the point of this, the big volatility premium we have that's existing while the Vix is only at 25. That's very strange. Right. Like in February, why did we have put skew at such a high percentile? This is the 90th percentile put skew. Even though at the moment the S And P wasn't moving at all. Right. So people were kind of hedged. So there's all these unusual flows and then unusual events that are coming into this time, which is really making it a very unique and strange time. And I think that the way this all clears is with the vault spike sort of resets. Resets the system, so to speak, or resets a lot of these flows which are starting to kind of break down the way that things normally behave.

[Jack]

And another unusual thing we had last time was software, obviously. Big declines and big volatility.

[Brent Kachuba]

Yeah. And that was the joke back to the lobster clause. We actually saw a pretty decent bounce in this sector and that was one of our strong views, was saying, hey, we like selling volatility in these stocks, right. Particularly in the earnings like CRM Salesforce and some things like that because they got so oversold. So we got a decent bounce in the IGV here up to about 90. But then obviously the Iran situation has come back in and all stocks are starting to sell off and so that picture's changed. So we did get a short term bounce as the volatility signal sort of suggested just an oversold bounce. But this is another thing to consider, right along with the Iran situation and the credit situation, we all still have to wrestle with the impact of AI. And what does that mean to the economy as a whole? I mean, Jack, I know you're big into the AI stuff like me and like Claude code and Claude desktop is just totally life changing. And what are the impacts of that? I mean, that's just another thing you got to throw onto the fire here of unknown unknowns as we all try to parse the future.

[Jack]

Yeah. And it was interesting to your point on software. Like I saw someone put this on, put a chart on Twitter. Like, software did like became an outperformer off of this. Like, yeah, you would expect it maybe software to keep carrying down, but it did not. And you sort of mentioned that in the last podcast that you, you thought we probably would see a reversal there.

[Brent Kachuba]

Yeah. And, and I'm, I'm a, I'm a trader, meaning my, my views are 30 days or less at most. Right. And so the kind of funny thing here is you have Citrini come out and say, you know, and what was funny about that piece? He's like, this wasn't a market call, it was just sort of an interesting thing to talk about. And I was like, that's weird positioning. But the point is still the same. Like you could still have this huge drawdown in software stocks over time. Right. Because they're being destroyed. That can be true. And what we were flagging was short term sort of oversold. That was for a meaningful trading bounce. And I think we got a decent, you know, 5 to 10% bounce on a lot of these names. But going forward, you know, we have to sort of reassess the situation in terms of what the options market's telling us.

[Jack]

Right. Like your, your data doesn't tell us anything about the story of software going forward. Your data tells us about positioning in software right now and what that means for the short term.

[Brent Kachuba]

Yeah. And I think that matters because even if you are a longer term investor, for example, you can use these option signals for short term positioning. So if you want to lighten up on some positioning or you're like, hey, I got to get out of these software stocks, well, wait for that volatility normalize. Then you get kind of that dead cat bounce and then you can roll some stuff off, for example. Right. Or maybe you could sell some puts tactically or if you want to sell some calls when we're rallying and calls are expensive to add some income, you can, you can use these short term market movements to help you sort of readjust positioning. And if you're Talking about trading IGV at 80 versus 90, that's a significant move. Right. That, that can add a lot of alpha to your, to your position or portfolio as you're adjusting your long term positions.

[Jack]

Yeah, I think that's the interesting thing about this stuff from like the perspective of a long term investor and like I'm not a software investor, but if, if you were a software investor and you see this big decline and you're looking maybe to add to your positions, like this stuff behind the scenes can really help you in terms of thinking about you're not going to get it perfect. But in terms of thinking about timing, this type of stuff can be really helpful.

[Brent Kachuba]

Yeah, I think that's 100% true. And there are moments in time where I think options expiration and the options signals can mark significant highs and lows in the market when you're talking about something more than 30 days. Right. Because the vols get so expensive and things get so kind of crazy. And I think on that point I'm watching the end of March as this moment where you go, hey, we may get a more significant drawdown, kind of that drawdown that we're like all maybe waiting for subconsciously that may finally, you know, show up here at the end of March when positions expire. So I think that's something we want to watch.

[Jack]

So moving, I don't know if there's anything to add here on the CRM stuff. We had talked about CRM in detail in the last one. But beyond that, like the. You, you. You were looking at 6600, right, as an important level.

[Brent Kachuba]

Last time we mentioned 6600 as a significant line because of where this negative gamma troughs. And why does that matter? Because under 6600 after Opex was where the hedging flows, the downside, hedging flows arguably waned. Right. They sort of were removed in the market. What's interesting about this is we had, if we look at the chart again back up here, Jack, this seemed to be where the market troughed, as you can see here, into that February March OPEX position. Now, what's interesting about this is that if you look at the new positioning here on this chart, we're actually going to see this trough is now at 63.50. So we have this kind of interesting moment where the JP Morgan position may hold us up a bit at 6, 500. But then you start to look at this ultimate low of something around 6350, which is what I'd be watching as we move into April.

[Jack]

And we'd also talked about the zero dte thing last time. Like, is this. You had talked about volume hasn't spiked that much since these more expirations have become available. Like, is that still the case? It's.

[Brent Kachuba]

It increased a little bit. It's hard still to draw any conclusions as what the impacts are because it's only been about six weeks, eight weeks maybe since these have launched. And so some of the volumes are changing. But I want to see a little bit more data to say, hey, this is not just, you know, causation correlation link, but actually something has happened, is happening here that's significant. And obviously there's a lot more noise now in terms of the Iran situation and ball spiking and stuff like that. So we need some more time to play out to see what the impact of these single stock expirations are.

[Jack]

So as we get to the current expiration, we're going to talk about what we were talking about before, which is this idea of correlation is definitely spiking.

[Brent Kachuba]

Yeah. And the reason I'm starting with this is because if you remember from the February position we just showed you around February OpEx, the core 1M or a correlation was right around here, 15 to 17 area. And we said correlation seems like it's warming up. Now, obviously I have no idea that the Iran situation is going to kick off. But now you can see that correlation has spiked again to the point of when this spikes, it means that people are deciding we are going to sell stocks. All stocks are an asset class. Now I'm not worried about picking AI versus financials or whatever it's all about. I don't want equities at all. Now what I bring up this chart also for is because big spikes tend to be a little bit higher from here, right, Jack. So there's plenty more to go. Both, both in terms of vix before you go, hey, this is starting to become a significant volume. But also in this correlation. If you look back at 2022, for example, see how high correlation was back then, right? And it was stable at this much higher level. Why? Because in 2022 the whole conversation was about do I own stocks? Are we going to shift rates? Is Powell going to cut? Is he not? What do I do? Right. It was not about asset allocation in terms of. Or equity allocation. Asset allocation. And so again, we're still sort of spiking here, but we're just warming up. I would argue it's not at this moment where you just go, oh my God, Vix is at 100. Like I just have to sell, you know, puts here because they're so expensive. It's worth the risk. We're not at that level at all. If anything, we seem to be more of the kind of at the ready position where it's like this is the position where things really start to break. And, and that's kind of what I see when I look at this chart.

[Jack]

That 8 level is really interesting. We talked about this last time and this idea that it usually spikes off that eight level. And it did again.

[Brent Kachuba]

Yeah. And that a level is a situation where people are too bulled up in the equity space, right. We get to 8 in this metric because people are buying tons of calls and single stocks and they're selling index calls. And it gets to this point where there's no more spread in that trade, right? And the way that that unwinds is index of all spikes, single stock crash. And then we have kind of an unwinding of this correlation trade. We saw a lot of those spasms over the last year, right. Where all of a sudden from Norwegian see, the equity market has dropped 2, 3%. You're like, what happened? Right. And it's because the positioning gets so over bold, right. That that things kind of break. This is the Opposite situation where we may break to the downside now because people are just dumping stocks writ large as opposed to sort of falling over themselves trying to figure out, you know, which call to buy. Right.

[Jack]

So as we move to our four quadrant chart, I'll let you explain what we're seeing here. But I, it's, I think it's fair to say this is unlike any four quadrant chart we've ever seen in the OPEX effect, because three of the quadratics have nothing.

[Brent Kachuba]

Yeah. And, and I made that remark earlier about how dispersed the, the plots were across that chart, if you remember, Jack. And then I said, try to. And I said, remember that because this is the chart. I'm referring to all of these stocks. And this is really unusual. All stocks, even all assets, not all assets, but a lot of assets are piled into this one corner. Why is that? Because call skews in these assets are really low. What does that mean? Nobody wants calls, period. Nobody's interested. Calls are also very cheap, I would argue, which is interesting. Everybody wants puts, people are buying puts, selling calls. So what happens is for those who are options traders, you know, the SKU gets very tilted. Right. Puts are expensive, calls are cheap. Now, most people would say, great, I'm going to buy calls and sell puts. But you can't because we have the Iran situation, the credit situation, I'll throw AI on there too. Fine. So you can't yet say, I'm going to sell these puts because why do you want to sell puts if we may have World War III or arguably already in World War iii. Right. So you can't sit there yet and say, okay, I'm going to pound this, these puts, I'm going to sell them and buy the call, which if I was just to look at this data, that's the trade I want to do. But what is, what is key to note here is the moment that Trump is like, we got a deal. And it seems like the deal is real and oil starts coming down, you're going to see this put skew get smashed. And you're going to see people have to run into calls because they're clearly not into the call side of the equation yet and calls are too cheap. So you're going to see this skew reverse violently. And the risk with this is that if you're sitting here short calls at this moment, I think that's a pretty foolish position because if a deal is announced and with Trump, you never know, right? Or one tweet all of a sudden, that this thing gets slammed and then I think you could see an incredible 3 to 5% stock rally in like two days if and when a deal is announced. And I would love just to see the, the whole conflict go away at this point. I think most of us would. Right. But that's the risk here of saying, well, I'm going to sell calls to hedge. My portfolio calls are extremely cheap in this environment. And so I was putting out in our piece this morning saying, look, maybe you just want to add some of this right tail risk. Because if, what if it comes to fruition that Trump announces a deal, puts get slammed, calls get bid, then you see just this violent rally. So as the market goes down, maybe you want to leg into some cheap calls here to cover your sort of right tail. I also think that if you're the type that says, hey, I want to buy this dip because we're going to rally, don't buy stock because if the market crashes in your long stock, you're going to get crushed. Right. But if you can buy cheap calls for your equity exposure, that makes a lot more sense to, to your point on that.

[Jack]

Like, I remember Liberation Day when Trump reversed himself. Like, I was, I was at a rest area, like driving somewhere. I looked out of my ph and I was like, holy crap, the market rally. Like. And I'm sure options were playing a huge part, like in how significant and how massive that move was.

[Brent Kachuba]

Yeah. And the liquidity was horrible during that time frame as well. So we're Getting was like 5 to 8% intraday moves or something insane during those periods. And you know what this is showing you is again, the correlation. Everybody is on one side of this boat and normally you want to bet against that, but you can't bet against it yet because of the, the risk, right. The, this known unknown risk of Iran and credit and everything else. And a lot of those I think are linked at this moment. We're going to talk about that in another slide or two as we get into Brent's conspiracy corner.

[Jack]

We look forward to that. But first we need to talk about cross asset correlation. So what are you seeing here?

[Brent Kachuba]

Yeah, and so Corp M measures equity correlation. Right. And as we can see here, equities are very highly correlated, meaning everybody is now inputs. It's not about index. Do I own index volume and then buy single stock volume? This is, I want to own puts, right. Period. And so correlation spikes as a result. Now, if we look at correlation across other assets. Interesting here because I wanted to highlight this back. This is from March 2019. I know it's a little bit tough to read. So what I'm looking at is Spiders versus tlt. This is two month correlation. And if you remember Jack during COVID normally what Happens is a 6040 portfolio. Right. What does that mean? Okay, I own stocks and then I own have bond position as my risk adjustment. Right. Because normally what happens historically is stocks go up, bonds go down or vice versa. Right. Bonds are the hedge. When risk off happens, we all run into government bonds as our, you know, risk free asset. Right. And this Paradigm broke in 2022 when rates were set to go higher and no one could really hedge their portfolio with bonds. Right. Remember was the death of the 6040 portfolio. I don't know if you remember that whole saga. Yeah. And think about what's happening right now. Oil going up means inflation's going up. Maybe we wouldn't have rates lower anyways, but certainly if we had oil to 150 or $200 as Powell I think alluded to yesterday, like, well, you can't lower rates if this inflation situation is going higher. So can you use bonds as a hedge? Right now I would argue probably not. So what does that mean? What are your other choices? Well, either you just dump stock and go to cash or you have to buy volume. Right. You got to buy vix calls. Put something else to hedge yourself. You can't weigh or lean on those bonds as your source of hedging flow. USAA knows dynamic duos can save the day like superheroes and sidekicks or auto and home insurance. With USAA you can bundle your auto and home and save up to 10%. Tap the banner to learn more and get a'@usaa.com bundle restrictions apply. Predator Badlands now streaming on Hulu and Hulu on Disney.

[Jack]

Here you're not the predator, you're the prey.

[Brent Kachuba]

Pray, pray, pray, pray, pray, pray, pray. Critics are saying it's epic, stunning and breathtaking. Many have come here, none have survived. Predator Badlands now streaming on Hulu and Hulu on Disney plus rated PG13.

[Jack]

So just this is a good fart for you to insert a bad macro take because we haven't had one yet in this, this position Powell is in is like really interesting because you know this, this oil spike is going to cause the short term inflation numbers we're going to see are going to be much higher now. But you also could argue like in the long term this is really bad for the economy. So like what to do in this situation, like I, I have no idea but it seems like it's made his situation much worse.

[Brent Kachuba]

Yeah. And it's also kind of interesting because if he knows that he's on his way out as we get into like the really bad macro takes and, and he may, he's not really worried about his job anymore. Right. Because he knows he's going to lose it. So does he just do maybe the really right thing or something? I don't know. It's, it's just kind of an interesting thing to think about. And, and again, the, the correlations here breaking down, I think are, or, or changing, I think are just really very interesting. And it sort of also suggests that the whole macro economy is just based on what oil is going to do here in the short term. Because if rates go up, then the credit issues get exacerbated. Right. That's not good for Blue Owl and all these other private credit funds that are gating investors everything else. Right. So, and why that matters to me in my equity seat is the biggest vault. Spikes come off of credit. Credit market crashes. Why? Because if you are locked or gated in some fund, right. Or some stock in their, in their credit, you can't really sell that at some horrible price. Your best bet is to buy equity puts. So you know, if you own some software stock and you think that they're, if you own the bonds of some software stock and you think that they may default, you buy the equity puts because equity will go to zero before the bonds, right. And then your puts will hedge out your, your credit exposure. And so they become sort of price agnostic buyers of equity puts or equity volume, the credit traders do, because that is the hedge that they need to save themselves from insolvency possibly.

[Jack]

So this, this next slide gets at what you were talking about before, which is this idea of the VIX versus realized volatility what you're seeing here.

[Brent Kachuba]

Yeah, And I was trying to put into context just how significant this, this was. So if you look back at the spread between the vix, you just take the VI index and then you take realized volume. Realized Vol just tells us how much the market's been moving the S P over the last month. And you compare those two levels which you can directly. Right. The current spread, or at least the spread when I made this chart was 10. I think it's widened out a little bit. 10 is a very large number. We were as high as 12. And you're talking about top 15 spreads that we've seen over the last, you know, 10 years. Right. So it's very significant. But what's Weird about this is that the VIX is only at 22. So if you look back at the biggest spreads here, which is what this is, right, you're talking about the great financial crisis, right? Or you're seeing a huge spike right around the COVID situation or in April, right, where the, the financial market seemed like it was going to cease. All of those had Vix of 40 plus or even higher, right? That's where you get this really big premium. So it's very unusual to get this big volume premium when the VIX is just at 25. So what is that saying? People are hedged, but the underlying market's just not moving very much. And so what's unusual here is not the hedging, I would argue, not the Vix 22. What's more unusual is the fact that we're not realizing any, any real market movement. And my concern with this is that I think at some point we finally get that 2, 3, 4, 5% equity market drawdown, volume starts to realize and then suddenly the VIX just goes, okay, great. And then it goes to 40, right? So you're just going to get. And this is the jumpers that I think can happen in as we remove these options positions with expiration, I think it frees up the market to have that realized volume move, right? And then suddenly we have that VIX spike that again shows up on Wikipedia and makes everyone really sit poor in their chair and go, oh, you know what just happened?

[Jack]

Do you know when we see these historically, I mean, do they typically resolve by realized volatility moving towards the VIX versus the other way?

[Brent Kachuba]

Normally what happens is you have a Vix goes to 50, right, or 60, and then you get a policy intervention. You know, think about in Covid, Powell announced a bunch of cash, comes off for Trump with the Liberation Day tweet. Or in this situation, if volume goes really crazy, okay, Iran deal solved, then we're going to, you know, quantitative whatever it may be, right? And so what then happens is, is the VIX gets slammed because you can sell forward volume, but you can't sell realize volume, right? Because it already happened. So what then you'll see is the spread will go sharply the other way. As you can see like here, right, in Covid, where the spread goes negative because realized volume remains high. But people start to sell volume, like implied volume, they sell. You can't sell VIX directly, but you get the deal. You short the VIX you sell puts whatever, implied volume crashes and then realize while still high, takes a little time for that realized window to come in. Does that make sense?

[Jack]

Yep. Makes no sense. Yeah. So this next slide we're getting this idea of what you're talking about. Realize volume is pretty low. I mean it's starting to come up a little bit in the last couple days, but it's still pretty low. Yeah.

[Brent Kachuba]

These are a bunch of different windows. Five day realized volume. Green is one month, which is sort of the standard. Then you have 2, 3, 4, 6 months. So most of these windows are at 12% implied volume. So what does that say? Volume's been very stable for a long time at just kind of 12%. It's really not doing much in even short dated vault 13%. It's very low. This, this is just average. And you could see that in this chart here, right Jack, that over the last 2019, this is pretty average in terms of market movements, lows and market movements. Very unusual given everything that's happening now. Some people may say, well this market was real hedged, well hedged. And if you look at the February data and those record put skews like, okay, that's true. So what happens when these positions clear out? Does that mean that it's not a well supported market anymore? And maybe that's where we get this realized volume spike. And you know, it's a hard thing to say. I'm going to bet that this is going to happen versus saying there's a good chance and you have to watch out for this risk of finally getting realized. I'm more in the camp of you need to watch out as opposed to saying, well, the market absorbed it all so we're okay. I think it's kind of the opposite. I think it's that thing where it's like, okay, what, you know, we were absorbing this, but the positioning, clearing out is more likely that something now can break as opposed to saying, no, we've absorbed this and now we're ready for a market bounce. I'm a little more nervous in that second in the first camp of this could finally release Vol to the to to spike. As opposed to saying this will be a, a a moment for markets to make lows.

[Jack]

Yeah. One of the interesting things I like about what we do here is like you often hear about these relationships in the market. Like everybody's talking right now about oil spikes, what happens to the economy. And you, you see that everywhere. But you get interesting stuff behind the scenes in terms of oil spikes, what happens to the market, oil spikes, what happens to the vix. And that's what we're seeing in this next chart.

[Brent Kachuba]

Yeah. And you know, it's a funny thing here because I used USO as a proxy because it was the cleanest data I have. And these correlations are admittedly fairly noisy. This going back to 2019. And so, you know, most of the time what happens to oil, it goes from 50 to 60. And if you're an oil trader, that matters. But no one in the macro economy, we're not talking about oil. Right, Jack? And I don't know anything about oil. I'm not here to profess that's a.

[Jack]

No less than you probably.

[Brent Kachuba]

Yeah. So, you know, it moves around a little bit. This correlation shifts. And so, you know, fine. But what you're seeing here is obviously as oil is rising now S and P or the spiders are dropping, so there's an inverse correlation which you're seeing get picked up here. The thing that is maybe more interesting too is historically you have a negative correlation between volume and oil. Oil tends to go up or down and VIX does the opposite. Right. But what we're seeing now is a very positive correlation. Now there's been these weird moments in time where you get a sudden positive correlation spike. And I think a lot of times that's just a little bit of noise. Right. Just happens to be that the two are moving in conjunction and it's not really significant. But right now we're seeing oil move up and VIX move up. Right. So there's these interesting correlations. So let me frame this a little more cleanly here, Jack. Here is a chart of the VIX is the blue line and crude oil is the candlestick. And as you can see here, March is basically the start of that ranch situation. They're both going up in very clear correlation. Right. There's no doubt that these two are correlated. Now a lot of times people say, well, correlation is not causation. In this case, I say it absolutely is. Correlation is causation here. Because the higher oil goes, the more the economy is going to have a problem. The higher rates go, right? And then that plays into the credit problem. And then all of a sudden you go, well, like, oh, okay. We're like, we have a problem here. Right? And so oil and equity volume are extremely linked. And they're going to be linked up until the point we go, hey, we have a resolution this. This situation at which points both oil and volume drop like crazy. And so, you know, this is kind of the interesting thing. A lot of us are like, well, how do I play oil spike into 150 maybe just buy Vix calls, right? Maybe by the 50 strike Vix calls, which are super out of the money. And if oil goes to 150, guess what? Vix is probably going to go to like 80 or something, right? It's just going to go bananas. And I think that's the risk we have to watch here. And so these are the links that you start to put together and you can start to see the conspiracy corner maybe building a little bit here, Jack, in terms of some of the macro hot takes that people are going to leave negative comments about. But, but it's very interesting to me how you have to sort of watch oil to estimate where volume is going to go, right. And equity volume is going to go. And that has implications obviously for everything as a whole.

[Jack]

And it's interesting. You have to think about like when you think about oil's correlation with everything, you have to kind of think about is, is oil the cause of everything that's going on? And like different periods. You know, sometimes oil and the S and P don't have that much to do with each other. But right now, I mean everything is trading off of oil. Like these big spikes is driving everything in the market. So oil is like in the driver's seat of the market right now.

[Brent Kachuba]

Yeah, I think that's right. And not only is the, it's the oil situation, I, you know, Brian doesn't have, I don't have a sentiment indicator really written, but when you go through fintwit now people don't normally talk much about policy and things like that, but there, but there is a real railing or sort of just uncertainty about the policy, like why are, why are we here? Why did we do this? And I'm not going to get into the politics because I really don't understand. But my, my point of bringing that up, Jack, is that there's a level of uncertainty that is really creeping up here now, right? It's like we went into Venezuela, it's like what, what was that? And then now we're in Iran in this situation where it's like what, you know, what is going on? What is the objective here now? Oil spiking. Now the midterms which were seemingly going to be Republican, they seem to be flipping Democrat now. So what's the impact of that, Jack? Do you have like a, A, you know, a dead stalemate now in our government that really can't produce anything and maga's debt? So you start to go, holy cow, like what are all the implications of this? And they're pretty wide ranging. Right. And I don't think anyone necessarily knows how to navigate that.

[Jack]

Yeah. The problem is all of this has been driven by a war and wars are just such incredibly uncertain things. And so who knows, like this could end well, it could end horribly. Like it could still be going on. Like there's all kinds of different things and it's just hard. You know, all we can do is look at it from a markets perspective is neither you or I or geopolitical analysts.

[Brent Kachuba]

Yeah.

[Jack]

We can just kind of look and play what's in front of us.

[Brent Kachuba]

And two, on this point, I think there's a window for when it has to end and I think that's kind of like the next 30 days. Polymarket, you know, has, has basically no chance of this ending by March 31st. But if you start to look at the longer, you know, the straight is closed and everything else, like the more it's likely that oil starts to pick up into the 120s, 150s et cetera. And so, you know, there I think is this point where if it doesn't get resolved pretty quickly, then all of a sudden you start to really can more solidify what the damage is. There is a moment here where, okay, as it gets solved in the next one to two weeks, maybe it was just this blip and. And by midterms it's forgotten. Right. So I don't think anything is over yet and it could change. It's very dynamic. And this is the, this at the end of the day goes back to the name of this presentation which was the known Unknowns. We all know what the problem is. Nobody knows how this is all going to end or how it all gets resolved or when it gets resolved. And so as a result you can't afford to sit here short puts or short VIX calls selling equity volume or buying this dip because you don't know what, when and how this all resolves and nobody does. And so until it's announced that this is fine and oil crashes right then I don't think you can pile into the equity. Equity longs. But the moment that happens you can jump on board because I think it's going to be a pretty significant rally. But until then I think the default is to think that this equity market gets weaker and if we start to go more days out in time, the jump risk, which is all of a sudden we had that realized volume crash, I think that starts to increase if there's not a resolution and a resolution fairly soon.

[Jack]

Yeah. The interesting thing here Is Trump is one, when the market goes down to reverse itself. So, you know, you'd expect if we get a significant decline, that's probably going to potentially happen. But the problem is, can you reverse yourself in this type of situation and can you undo the damage? And how do you reverse yourself? This one's a little harder to reverse than some of the other ones. And so it's going to be interesting if the market sells off, like how this will happen. And obviously you. And I don't know, but it's just interesting as an observer to think about it.

[Brent Kachuba]

Yeah, 100%. And it was funny because. And there's nothing funny about this, but, you know, funny isn't strange that Pam Bondi, and this is totally random, but Pam Bondi went in front of Congress to talk about Epstein and she said, you know, The Dow's at 50,000. Why are we sitting here talking about Epstein? And it just highlighted the focus of how the stock market is this barometer for good versus bad in the American lifestyle. Right? It's like if the government and she who is not, you know, related to finance or economics at all, sitting there being The Dow's at 50,000, why do you care about this situation? You're just like, like, wow, okay, so like it doesn't. Nothing matters if the stock market is up. But it just highlights to your point, Jack, that it is such a barometer for how good, you know, particularly Americans are doing if the stock market is up. When the stock market crashes, everyone starts feeling pretty bad about the state of the situation. And again, midterms are coming up. And I think, you know, everybody knows like you, you want a strong market into elections because you in theory will do a lot better if that's. That's the case.

[Jack]

So I'll wrap up the bad macro takes here and move on. But so this next slide is one we look at all the time, which is you're looking at some of the upcoming events and what you think significant here.

[Brent Kachuba]

Yeah, this one. Actually, Jack, before we jump into that, this is March of 2025, so about a year ago. And the reason I'm showing you this is because this is the last time the J.P. morgan trade came into play. And so at 331 of 2025, so exactly a year ago, the J.P. morgan position was at 55.65. And so amazingly, Jack, at February options expiration, the market got weak. Do you remember, you know, the, the chart here of what happened just in this February market got weak at the same exact time. Do you remember Covid Jack in January of 2020, where it's like, hey, people are dropping dead in the streets. Why isn't the equity market reacting to the entire situation? And then in February, it broke. And so it's just the timing of all this stuff is interesting. There's a cyclicality to it. But the point here is that 55.65 and in our founders notes, we were talking about this in real time. So if you're a subscriber to Spot Game or if you subs to Spot Gamma. Number one, thank you. But number two, you can go back and look at our notes here. And we're actively talking about this position and the fact that the market bounced right there. Right. So this is essentially the same time frame and this is the March quarterly expiration. And remember before you know, amazingly, the market will move to this strike where the strike expires worthless. And guess who wins? Like the market maker wins, the dealer wins. And so you can see here at March quarterly expiration, we closed right at that strike that put basically expires essentially worthless. And that opened up this sort of trap door. Now the policies had to get worse in that situation than they did with the tariff tweets and things like that. But my argument is that this downside was made more available for a tweet to sort of take us out. And I think it's a similar situation where 6500 is where that JP Morgan strike position is right now. And look, if, if they announce a deal, then market's gonna rally, of course. Right. And if oil comes down, market's gonna rally. But in this case, if, if things get a little bit worse or there's a little more of a flare up, then maybe we finally get that realized volume jump and that big pukey move because the supportive market positioning is going away on 331. And so what this is just showing you is there's some precedent, recent precedent, right. In a similar situation, showing that these options flows are maybe supportive of a market and then they're no longer supportive. And then you get really big gaps down.

[Jack]

So on this next slide, are we looking at oil and the S and P and then the VIX is that we're looking at.

[Brent Kachuba]

Yes. And this is where Brent's conspiracy corner kicks in. Jack, you're old as, as old as I am. So you remember the great financial crisis. You're just a young buff, exactly where you were strolling around, but you probably had a beer in your hand and having a good time. And so we had that massive Oil spike, which is what this is. This is crude oil here, right? And again, I'm not, I don't know enough to know about the relationships of all these things. I just think it's fascinating. But remember oil went 150 ish or 200 and I think it was like the end of crude oil. And there was that guy who died in his hot tub, Matt King or whatever. And it's like, it was like the dinosaurs had all ground up in the dirt in the ground so oil couldn't get made in fossil fuels and whatever it was, right? It was this crazy thing, but oil made this really big move, right? And it was very unusual. And that was in early 2008. And so here you have the S and P in gold. And what I just thought was fascinating about this was oil rallied to this bananas number. Everyone's like, holy cow. And then right after that was like the second and major leg of the GFC kicked in. Bear Stearns had already gone down at this point, but it all seemed, I don't know, somewhat nonchalant. And then oil just went crazy. And then it was when oil peaked, the, the S and P crashed. There was this massive VIX spike right as we got into the great financial crisis. And I had never sort of attempted to link in my mind and I think if you read about the playbook of the great financial crisis, you don't really ever bring up this oil idea, right? That oil spiked so violently, or at least it's not a common thread that I think of. And again, probably macro guys are throwing their shoes at the screen right now. But it's such a fascinating analogy at this moment because. And again, the reason I care about this is because if oil spikes like it does and rates spike, right, as a result or inflation spikes and they can't lower rates and we're having these credit issues. Does, does the higher oil sort of take that little molehill, turn it into a mountain? And that's where you start to get these kind of biblical moves and equity volume and, and to me it's really fascinating because the other thing that happens here is you get the demand destruction, right? And then the whole economy just starts to tank. And so oil prices drop because, you know, no one's really, the economy is just kind of grinding to a halt. And so, you know, these are, are, you know, just this really interesting sort of macro thing that sort of popped up to me to think about as, as you sort of parse through this a little bit. And it's something that came up and again. I call it the conspiracy corner because I don't have any educated or anything to offer here, but it's just one of those things to think about. Deep, deep tower. Deep shower thought for you, Jack. Maybe.

[Jack]

Well, I'll try to come up with like a little slash cream we put before this, like Brent's conspiracy corner, just so we. I could do, you know, these, these image things now. I could put a look of shock on your face, like through AI.

[Brent Kachuba]

Yeah.

[Jack]

So I don't. I don't even need you to do it anymore. I could just do it. So we'll come up with some sort of slide for this. Yeah, I like that. But.

[Brent Kachuba]

But, you know, I think the point overall is the same in that you have the credit problems. We all. It's on the headlines every day. Powell yesterday said if oil goes up, that makes the case for lowering rates or inflation harder. So, okay, those two things are linked. Economies are a little bit weird. You have the whole AI, you know, story, so, you know, is. And the political regime is shifting and you start to go like, maybe this isn't great financial crisis, which is admittedly, you know, one of the scarier times in, in U.S. economic history. But GFC light, I mean, doesn't seem that unreasonable or wild when you see all that's going on.

[Jack]

Yeah. What's interesting too is like back in that 08 period, like when that first oil spike, you know, when that oil spike came before the whole crisis, the Fed hiked into it. And, and it's an interesting thing just to think about where they are now. Like, I mean, I have to think the Fed is going to just do nothing and who am I to figure this out? But it's like they're not going to. Like you said, Powell, is like, I can't cut rates into this.

[Brent Kachuba]

Yeah.

[Jack]

But by this. Yeah, I mean, by the same token, they're not going to go increase rates right now. I don't think so. You're probably going to see them doing nothing here until this plays out, I would guess. Yeah.

[Brent Kachuba]

And it seemed like the case for cutting rates was already diminishing before we had the oil situation. So, you know, it's, it's weird. But then if you're having these, you know, funny credit funds, which are, again, on the outskirts of the credit market, but that's kind of how it starts, Right. It's like these little credit issues start and that spirals into a much bigger credit problem. And it's like, oh, you know, oh, right. And, and so on that point Here, just to move fully into Conspiracy Corner, I, I plotted the high yield credit spreads here. This is from the St. Louis Fed site. And, and so you just see the, the credit spreads were, you know, kind of widening out into the GFC and into this oil situation. So oil seemed to move and then you saw, you know, the credit spreads really change quite a bit. Right. And so again, fun conspiracy corner type thing, but, but these things all seem to be really kind of linked in this situation. And as you look back historically at these events, you got, you kind of go like, okay, like maybe this doesn't repeat, but, but it feels like there's some rhyming again. Why do I care about this? Because you don't want a short volume. If you start to put these pieces together and you start to sort of think about the chain reaction of events if we don't get a quick resolution to this, right. You don't want to sit there and say, I'm going to sell, you know, VX, VIX, ETFs, because they always mean revert, right? This is not that moment to get cute. When an Iran deal announced and oil starts to come in, then maybe all this unwinds, you don't care. But at this moment, this speaks to me of, of the possibility and a distinct possibility of equity volume just kind of like going bananas. And, and you know, that, that is a, I think, a major risk here. With that, I'll close up Conspiracy Corner.

[Jack]

Yeah, we'll close out the podcast too because we, we covered a lot of stuff here and it does sound like, just to summarize, it does sound like you're in the somewhat concerned camp right now.

[Brent Kachuba]

Yeah, I, I, I think that's exactly right. And, and, and so the way that I want to position for this is I have put flies on for the 6500 area into March. Options are expensive, so it's hard to buy puts at this moment. So a lot of it is sort of like, let me sit in cash, let me try to reduce my exposure and wait, I want to leg into some call spreads for, you know, maybe April or maybe in case a deal's announced, then I think there's just this unbelievably violent rally. But those are very small, kind of COVID my right tail things. A lot of this is sitting and waiting until, you know, you see the whites of their eyes and a deal is announced and then we're okay. I don't think you want to get into a situation where you try to get queued and buy the dip because you know, taco or whatever. And then the market rallies. I think you want to be, you know, quite careful. And it's hard to buy puts here when the VIX is also, you know, relatively expensive. So. So those options aren't cheap. You really kind of, I think, want to reduce exposure, buy a little bit of call spreads in case there is a big market rally. But I think this is a time for caution here as opposed to sort of betting on some type of immediate sharp market rally.

[Jack]

Well, Brent, I appreciate you doing this. As people could probably see from the trees behind you, you're doing this from vacation. So I appreciate you taking the time out here to talk to me.

[Brent Kachuba]

Yeah, thanks so much, Jack. I was able to sneak away for a few days and if you want to get some more Spot Game, if you go to spotgame.com trollpatrol, we send you a for free. You get a daily report from us that shows the biggest buy side options, position changes day over day. So you get that in your email if you go check that out. And thanks again, Jack, for having me on. And, and I love doing this and, and thanks for setting it all up.

[Jack]

Yeah, and this video will come from both Spot Gamma and Excess Returns. So if. If you hit the subscribe button and you're not subscribed to Spot Gamma yet, or if you're not subscribed to Excess Returns, you know, please do that. As a good podcast host, I have to say, like and subscribe. And as I've learned recently, also I have to say comment, because apparently that helps with the video. So if you have horrible things to say about Brett and I and you want to bash us, please let it. Let us have it.

[Brent Kachuba]

Let it fly.

[Jack]

Thanks everybody for joining us and we'll see you next time.

[Podcast Host]

Thank you for tuning in to this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the Excess Returns [e-mail] if you have any feedback or questions, you can contact us@excess returnspodmail.com no information on this

[Jack]

podcast should be construed as investment advice.

[Brent Kachuba]

Securities discussed in the podcast may be holdings of the firms of the hosts or their clients.