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)

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.

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]

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)

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

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.

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.

“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)