Excess Returns Podcast Summary

Episode Title: Magnet Above. Trap Door Below | Inside the Options Flows Driving Markets with Brent Kochuba
Podcast: Excess Returns
Date: December 13, 2025
Guests: Jack Forehand, Brent Kochuba (Spot Gamma)
Main Theme:
A deep dive into how options flows—particularly around key expirations—are influencing market dynamics, sector rotation, implied volatility, and “Santa Rally” expectations. Brent Kochuba breaks down options data, dealer positioning, and the importance of monitoring expiration-related flows even for long-term investors.

Overview of the Episode

This episode centers on the explosive growth and dominating influence of options market flows—especially zero day-to-expiration (0DTE) options—and how these flows influence equity market direction, volatility suppression, and sector rotations. Brent Kochuba, founder of Spot Gamma, shares actionable insights into reading options data, the impact of large expirations (especially the December OPEX), and practical implications for both hedgers and speculators across stocks, indexes, and even commodities like silver.

1. Key Discussion Points & Insights

A. The Ever-Growing Impact of Options Flows

• Options Market Growth: Since 2020, options volumes are up 150%+, outpacing stock volume. The bulk of this growth is driven by both institutions and retail participation, especially in 0DTE options.
• 0DTE Dominance: In November, the CBOE reported a record ADV of 4.6 million SPX contracts—2.8 million of which were 0DTE—highlighting the central role of short-dated options.
• Market Making & Transmission: Market makers facilitate ~90% of trades. When traders buy large volumes of calls/puts, market makers are forced to hedge by buying/selling underlying shares, causing significant spot moves. (09:56)

“If you’re trading the S&P 500, you’ve got to be watching those 0DTE flows... we see fingerprints of those trades in the market every single day now.”
— Brent Kochuba (10:18)

B. Current Macro Backdrop and AI Speculation

• AI: Bubble or Paradigm Shift? The panel discusses the blurring line between hype-driven investment (like during the Internet bubble) and the real utility of current AI advancements.

“It’s hard to realize that it can be a successful product... but the billions and trillions of dollars flowing into it might still be too much.” (03:57)
— Brent Kochuba

• Sector Rotation: Tech and AI mega-caps’ momentum is waning. Money is rotating into small caps and value stocks, but not in a classic “risk-off” scenario.
• December’s Build-Up: December’s options expiration is always the largest of the year, making these flows even more critical.

C. Santa Claus Rally & Flows Narrative

• Seasonal Dynamics: The so-called “Santa Rally” isn’t magic—flows into/through large expiries, especially with bullish call-heavy positioning, tend to support markets in December.
• Market Structure: Current positioning is call-weighted but not at extreme levels; likely a mild tailwind, not a blowout.

“This flow should help keep the market propelled into this options expiration next week. And then volatility sort of subsides. And then... maybe that allows January to be a little bit more volatile.”
— Brent Kochuba (17:01)

D. Dealer Positioning, Gamma, and Key Levels

• Delta & Gamma Explained: Dealer hedging flows depend on delta (stock exposure equivalent) and gamma (rate of change of delta), which peak around large strikes approaching expiration.
• “7,000 Magnet” and “6,800 Trap Door”:
  • 7,000 Level: Represents a “magnet” for the S&P due to open interest, especially related to the large JP Morgan collar trade.
  • 6,800 Level: Below here, negative gamma risks, higher volatility, and greater probability of a larger selloff.

“As long as we’re over that 6,800 level, I like leaning long. If we lose 6,800, then show’s over—I think we trade down to 6,600.”
— Brent Kochuba (59:21)

E. Volatility Suppression & Retail Strategies

• Iron Condor Popularity: Retail traders often sell iron condors in 0DTE options, betting on limited market movement.
• Martingale Risk: The doubling-down “martingale” method can blow up when volatility spikes persist longer than expected.

“If you keep doubling down, the exponential values... at some point you could have a capital constraint that blows that trader up.” (10:18)
— Brent Kochuba

• Volatility “Crush” and Cheap Upside: Options are particularly cheap heading into December due to both holiday effects and dealer positioning (especially calls near JP Morgan’s 7,000 strike), making tactical upside exposure attractive.

F. Recent & Upcoming Market Events

• Post-November OPEX: Market bottomed on OPEX day, then rallied amid volatility “clearing.”
• Oracle and Tech Earnings: Oracle’s surprising influence—a major AI CapEx play. Even with a 14% post-earnings drop, put implied volatility fell, meaning traders sold (not bought) puts, possibly signaling greater confidence in downside containment (53:56).
• Fed, CPI, and Non-Farm Payrolls: While major events, the market is focused on positioning through the end of December into January, with a likelihood for increased volatility as traders return from holidays.

G. Silver and Commodities Option Flows

• Silver's Run: Silver rallied sharply (up ~30% since early December), attracting speculation that banks like JP Morgan are “on the ropes”—a meme reminiscent of past commodity squeezes.
• Options Data Signals: As silver made new highs, call volumes (implied volatility) peaked and began falling. This typically signals exhaustion and possibly a short-term pause/correction.
• Historical Lessons: Attempts at “cornering” markets (e.g., the Hunt Brothers in silver, or the nickel squeeze) demonstrate that exchanges will change rules to protect market integrity, making giant “break the bank” trades dangerous.

“If JP Morgan was indeed on the ropes, they will change the rules of the game... the system protects itself.”
— Brent Kochuba (63:50)

2. Notable Quotes & Memorable Moments (with Timestamps)

• “Price is truth. The options market is going to tell us what people are actually betting with their money versus you and me, you know, spewing ridiculousness about AI that we don’t know anything about.”
  — Jack (06:21)

• “So if you keep doubling down, the exponential values of this thing... at some point you could have a capital constraint that blows that trader up.”
  — Brent Kochuba (10:18)

• “Gamma concentrates for at-the-money options and increases as we get closer to expiration. Just replace ‘gamma’ with ‘hedging importance.’”
  — Brent Kochuba (45:45)

• “Options volumes continue to grow, as you can see here from 2020 to the present, up 150%... That’s greatly outpacing stock volume, and I think a lot of that stock volume is driven by options hedging flows.”
  — Brent Kochuba (07:31)

• “If you trade the S&P 500, you’ve got to be watching those 0DTE flows.”
  — Brent Kochuba (10:18)

• “Buying a cheap option: if you’re wrong, fine, I lost my money on a cheap option. It’s great.”
  — Brent Kochuba (48:17)

• “No one at the moment seems to be wanting to buy Oracle puts, which to me suggests that Oracle is not about to go belly up, which... suggests that equities still should have a bit of support.”
  — Brent Kochuba (56:44)

• “If we lose 6,800, then show’s over. I think we trade down to 6,600.”
  — Brent Kochuba (59:21)

3. Timestamps for Important Segments

• Options Market Growth & 0DTE Discussion: 07:31 – 10:18
• Iron Condor & Retail Strategies: 09:56 – 10:18
• AI Speculation & Sector Rotation: 03:57 – 07:14
• Santa Rally, OPEX Flows, and Market Structure: 14:57 – 19:59
• Key Levels Overview (7,000 and 6,800): 38:41 – 41:14, 59:21
• JP Morgan Collar, Gamma as Magnet: 43:12 – 46:41
• Oracle Earnings and Put Skew Discussion: 52:17 – 56:44
• Silver Options, Extreme Moves & Historical Lessons: 59:21 – 68:10
• Summary of Positioning & Wrap-up: 69:45 – End

4. Episode Takeaways

• Options flows, especially short-dated and expiry-driven, have become the single most important source of stock market pricing pressure—affecting all investors.
• Dealer positioning and large options expirations create “magnets” (e.g., 7,000 on the S&P) and “trap doors” (e.g., 6,800 support) that traders must monitor.
• Volatility suppression from systematic call selling, income ETFs, and retail condor strategies can make markets appear calmer than they are—until positioning flips.
• Extreme options pricing in assets (stocks or commodities) often signals exhaustion; the options market provides early warnings not obvious in price charts alone.
• Regulators and exchanges have a history of changing the rules if “cornering” attempts threaten system stability—market structure trumps individual bets.

The episode masterfully blends informed options analysis with market color, macro observations, and a peek behind the curtain at the flows driving equities and select commodities. Whether you’re a long-term investor or a tactical trader, the key message is clear: options flows not only reflect, but often dictate, the rhythm and inflection points of major markets.