The SpaceX IPO Meets a Huge Options Expiration | Brent Kochuba on What Comes Next

Summary

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Excess Returns Podcast Summary

Episode: The SpaceX IPO Meets a Huge Options Expiration | Brent Kochuba on What Comes Next

Date: June 13, 2026
Hosts: Jack Forehand & Brent Kochuba

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Episode Overview

This episode dives into the dramatic debut of the SpaceX IPO—a market event that's set the entire investing world abuzz—and its unique overlap with a massive options expiration. Jack and Brent center their discussion on how flows, liquidity, and options mechanics are far more critical than fundamentals in the immediate aftermath of such a high-profile IPO. They also cover ripple effects across ETFs, index inclusions, macro crosscurrents (notably Iran news and FOMC), and what these dynamics mean for investors and traders in the days ahead.

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Main Discussion Points & Insights

1. SpaceX IPO: From Fundamentals to Flows

• Fundamentals on Mute:
  • "Guys like me...we love like fundamental data and all that. Like that is literally irrelevant right now at the beginning of trading on SpaceX. Like this is a flows game based on who has to do what." – Jack (01:21)
• Liquidity Dynamics and Gamma Squeeze Potential:
  • SpaceX launches amid unique liquidity demands and a tight float, making it vulnerable to a classic "gamma squeeze" as options open.
  • "You could gamma squeeze this thing I think pretty easily, which is, you know, a very interesting prospect here." – Brent (01:31)

2. Social Mania & Retail Frenzy

• SpaceX goes truly mainstream, attracting attention far outside standard finance circles.
  • "My dentist friends are texting me...I'm going to see my mother later. If she asks me about SpaceX, I might have to short it." – Brent (02:32)
  • "My uncle was texting me about it...this has definitely gone way beyond the world of investing." – Jack (02:45)

3. Valuation Records & Index Inclusion

• SpaceX’s Staggering Valuation:
  • "Nobody cares what the price of sales...it’ll be higher than any company that is in the S&P 500. This is coming out around 100 times sales." – Jack (04:10)
• Implications for Indexed Flows:
  • Expected additions to Russell and NASDAQ stir major ETF and index flows.
  • "There’s so many flows, there's 20-something ETFs, there’s delayed lockups, Russell's going to add it in, NASDAQ’s going to add it." – Brent (04:44)
• Historic IPO Proportions:
  • "This is the biggest ever raised. The IPO is gonna raise $75 billion...If you put the two Google classes together...that’s around the same thing." – Brent (10:44)

4. Wider Impact on "Mag 7" and Market Structure

• Knock-On Effects:
  • Liquidity being siphoned from Megacap Tech ("Mag 7") as investors make room for SpaceX.
  • "The Mag Sevens have been getting sold for this...Tesla, Nvidia, Apple, all those names seem to be getting beat up more..." – Brent (08:34)

5. Options Mechanics & Expiration Dynamics

• Massive Options Expiration Incoming:
  • "On the 5th, which was the spasm day, we traded 108 million total contracts. That’s the second highest ever." – Brent (24:08)
  • Next week’s OPEX coincides with SpaceX’s option listing, creating potential for volatility explosions.
• Dealer Hedging and Gamma Squeeze Risk:
  • "If enough options start to trade...there’s that liquidity demand, you could gamma squeeze this thing..." – Brent (25:12)

6. Previous IPO Analogies & Market "Spasms"

• The Danger in Chasing IPOs:
  • Comparing SpaceX with recent wild IPOs (e.g., Cerebras, Avis, Hertz) highlights the risk and the asymmetry created by tight floats and speculative flows.
• Volatility Events ("Spasms"):
  • "These are what I call spasms...People kind of black out and then they kind of come to and things recover." – Brent (36:58)

7. Macro Crosscurrents

• Geopolitics (Iran news) and macro events (FOMC, Fed Chair, BOJ/ECB decisions) layer complexity for options markets and contribute to the "choose your own adventure" path in coming weeks.
• "If there’s no Iran deal and it turns out to be some nonsense, I don’t know how the market reacts but...do we spasm into the end of July stuff?" – Brent (62:03)

8. The "Core 1M" Signal & Short-Term Indicators

• Core 1M as a Risk/Volatility Set-Up:
  • "...within 20 days you’re going to have a volatility event. Now that could be a 2, 3%, one day drawdown...or a 10% contraction." – Brent (43:03)

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Notable Quotes & Memorable Moments

• "I didn't have anything else other than Elon the Trillionaire, because I'm still trying to wrap my mind around that. It's just a shocking series of events." – Brent (02:55)
• "If the Iran deal isn't real...that's going to hit the market, I think, harder the more we keep going here." – Brent (04:44)
• "It is, it's...astonishing...Tesla obviously is the big driver, PayPal ...But then you had Tesla being the giant one...with the SpaceX launch, it's apparently going to be just under a trillion dollars..." – Brent (07:26)
• "You could gamma squeeze this thing...which is, you know, a very interesting prospect." – Brent (25:12)
• "Usually when these indexes are adding these companies, it's the wrong time and it's bad for the investors in the index. But...people do use the S&P as like a tracker for the overall US Stock market." – Jack (67:22)

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Key Timestamps for Important Segments

• [01:21] – Fundamentals vs Flows: Why fundamentals are moot at the IPO open
• [02:32] – SpaceX hype goes mainstream
• [04:44] – Index flows, lockups, and the ETF effect
• [10:44] – Stats on SpaceX as the largest US IPO ever
• [14:29] – Did Mag 7 get sold in advance to fund SpaceX?
• [24:08] – Record options volumes and implications
• [31:27] – Options expiration (OPEX) and why the calendar matters
• [36:58] – Macro events: Iran headlines, FOMC, rate dynamics
• [43:03] – Explaining the Core 1M volatility risk signal
• [46:46] – Dealer gamma, market "guardrails", and hedging flows
• [63:31] – S&P vs NASDAQ: How SpaceX's inclusion may fuel further divergence
• [68:13] – Summary and what to watch: Core 1M, volatility crush, and the short-term game plan
• [71:14] – Brent’s shot-in-the-dark SpaceX thesis: potential for a short-term gamma squeeze

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Natural Flow, Tone & Takeaways

Jack and Brent keep things both sharp and accessible, peppering technical options insights with references to investor psychology and popular culture. Much of the tone is breezy and self-aware—they repeatedly clarify when they’re speculating or "shooting in the dark" and caution listeners not to treat opinions as investment advice.

The pair are unambiguous that, in the days around a mega-IPO like SpaceX, what matters most is not accounting ratios but how liquidity, index flows, and the structure of options markets interact. They expect volatility, especially as new options are listed and indices rebalance.

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Summary Bullets for Listeners Who Missed the Episode

• Fundamentals don’t matter (yet) for SpaceX—flows and positioning dominate in the IPO window.
• SpaceX’s initial trading brings unique risks and opportunities: expect potential for wild volatility as options trading opens.
• Index rebalancing (NASDAQ, Russell) and delayed lockups will keep flow-related dynamics shifting for weeks.
• Massive options expiration next week amplifies market instability, timing with key macro events (FOMC, Iran).
• The "Core 1M" volatility signal is worth watching—if it dips below 8, history suggests a near-certain volatility event in the next 20 days.
• Market structure points to a pattern: strong rallies into options expiries can reverse quickly—don’t get complacent.
• Expect the S&P 500 and NASDAQ to increasingly diverge, especially with the former excluding SpaceX for now.
• Jack and Brent both took a personal flyer on SpaceX, viewing it as a "fun" speculation—not investment advice.

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Final Note:
None of this constitutes investment advice. The episode’s analysis is meant as education and entertainment for sophisticated investors navigating highly dynamic markets.

Transcript

[Brent Kachuba]

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[Jack]

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[Brent Kachuba]

We hope you enjoy the show.

[Jack]

What's interesting about SpaceX too is like guys like me, we, we love like fundamental data and all that. Like that is literally irrelevant right now at the beginning of trading on SpaceX. Like this is a flows game based on who has to do what.

[Brent Kachuba]

There's that liquidity demand. You could gamma squeeze this thing I think pretty easily, which is, you know, a very interesting prospect here. I think over the next week really given the attention this thing is getting and these liquidity dynamics. I have not seen anybody talking about these liquidity dynamics, Jack, so I think this is a unique angle that we're talking about here. What caused the spasm last week was the evisceration of super expensive calls. It wasn't that people were like I want puts. It was like I I gotta puke out of these calls. And that's that was what what drove the craziness of of really the last week. To the downside where you really want to start watching out is if we lose 7,400 now we move into this what I call a flat to negative gamma regime, which would be red on this map that's where the dealer flows start to sell into market weakness. And that's where things can get kind of ugly.

[Jack]

So, Brent, it's June 12, 2026. We're just after noon and SpaceX is live and up, up around 20%.

[Brent Kachuba]

That's right. My dentist friends are texting me, asking me what SpaceX is going to do. So, you know, kind of event this is, it's, it's a big, you know, worldwide event here. I'm going to see my mother later. Later. And if she asked me about SpaceX, I might have to short it. Let's, we'll see.

[Jack]

Yeah, yeah, my uncle was texting me about it, which he always does about these hot, these hot stocks. So, yeah, this is, this has definitely gone way beyond the world of investing and into like, everybody's thinking about this thing.

[Brent Kachuba]

Yeah. And to be honest with you, there's so much stuff going on right now. And then you had SpaceX on it. Normally I am a guy that has some, what I think are some humorous titles. I didn't have anything else other than Elon the Trillionaire, because I'm still trying to wrap my mind around that. It's, it's just a shocking, you know, series of events that have led him to fairly wealthy individual to like, God, like money.

[Jack]

It is crazy. I mean, he's had so many times in his career where he almost like it almost all fell apart on him and to think, like, to think like where he is now. Yeah, it's, it's, I mean, you got to give the guy credit. Like it's an incredible accomplishment. You do the kind of companies that he's built.

[Brent Kachuba]

That's right. And now, you know, we all have to talk to think about Elon here the next couple of days as we try to figure out, I think not just what SpaceX is going to, going to do because, you know, if you just ignore the stock kind of, who cares, but it's going to move. And I think it is moving some of the stocks that we're all trading every day. And so we're all trying to weigh the market impact against a slew of Iran headlines, which is just further complicating things on FOMC Day. So, so this is a little bit of a tough environment to try to navigate versus last month. I thought it felt a little more clear to me. So. So we'll have to see. We'll parse through things in the next few minutes here.

[Jack]

Yeah, and what's interesting about SpaceX too is guys like me, we love Fundamental data and all that. That is literally irrelevant right now at the beginning of trading on SpaceX. This is a flows game based on who has to do what. Nobody cares what the price of sale, the price of sales, by the way, it will be higher than any other. It's not in the S&P 500 yet, but it'll be higher than any company that is in the S&P 500. I think right now Palantir is like 65, I believe. And so this is coming out around 100 times sales. So this will be, you know, the most expensive large company by a wide margin. But nobody is going to care about that at all for a period of time as all these flows have to happen.

[Brent Kachuba]

There's so many flows, there's 20 something ETFs, there's delayed lockups, there's, you know, Russell's going to add it in, NASDAQ's going to add as we're going to talk in a minute. So that, you know, makes it challenging to navigate there. Then you have the very rapidly shifting AI dynamic dynamics. Right. I think Quad and obviously OpenAI are going through the, their IPOs and I just think for the AI systems that matters in terms of pricing, obviously SpaceX is kind of an XAI is a big component of that. So there's so much changing around here, you know, not just fundamentally in sort of evaluations, but also just in terms of like you said, the flows piece, there's lockups that go out over time with SpaceX so that they can add them to the indices and they'll have liquidity and stuff. It's just like, holy cow, like good luck trying to understand how this whole ecosystem is gonna work. And so we sort of are wait and see mode here for, for a little bit. But that comes up again against this Iran situation. And Iran I think in the short term matters a lot more. Even though we're only talking about SpaceX, there's a big Iran signal that came yesterday with Trump's tweet. Vol really dropped because of that. We're supposed to get a deal signed this weekend, but you know, who knows. And so the, that's just another piece of this pie. If the Iran deal isn't real, you know, that's going to, that's going to hit the market I think harder you, the more we keep going here.

[Jack]

So obviously you've had, we, we love Brent's conspiracy corner and obviously you've had some conspiracies that the idea was Iran had to be settled to get the SpaceX IPO out. So we, we had to make sure, we had to make sure SpaceX didn't come out into a bad environment. So we, we found a way to at least propose deal to appear.

[Brent Kachuba]

They announced the deal yesterday at 2:00 and the market just went super bid. And then today, you know, they're like, they got some confirma lines coming in and the market went bid again and then, you know, and then SpaceX. So I don't know, I don't know. Bren's conspiracy.

[Jack]

We need Jack's conspiracy corner to go with Brent's now. We need, we need multiple conspiracy corners here. In the end, in a podcast where we're supposed to be talking about options flows, we'll just look at degenerating the conspiracy corner.

[Brent Kachuba]

We strayed way off. So our chart of the day here is Elon Musk's net worth over time. I had Grok, which I thought would be the most biased about this present. Elon's net worth. And Jack, I don't know how they present your net worth, but his is presented here in billions. So

[Jack]

I was thinking like in 2002, like if you put my net worth like currently against his 2002, like it wouldn't even, like there wouldn't even be blue there. I don't think that's way before it went up.

[Brent Kachuba]

18 billion.

[Jack]

Yeah, you should have put Jack's net worth on the chart along with Elon Musk's.

[Brent Kachuba]

It is, it's down here, like the

[Jack]

bottom, like there wouldn't be anything there.

[Brent Kachuba]

It's right here, you know, so, you know, you had, you had Tesla obviously is the, is the big driver PayPal and some of his earlier ventures in here after PayPal. I forget which one I'm missing there. But then you had Tesla being the giant one and then a lot of these other moves that companies have combined and things like that. But this Today with the SpaceX launch, it's apparently going to be just under a trillion dollars, depending on where you mark SpaceX here. But, you know, just a, an astonishing number. And so, you know, I've already had a bunch of people tell me these are just the public people, you know, you don't want the secret families. They already have trillions. So I don't know about those people, but the, the public figures here, he's definitely the wealthiest and they say, Brent,

[Jack]

after a certain net worth, it doesn't affect your spending anymore. I think he, I think he's over it. I think it's fair to say that like whether it's a trillion or not is probably not affecting Elon's day to day spending at this point.

[Brent Kachuba]

I'm guessing not. Yeah, I'm guessing not. He corrected a funny AOC was saying, calling him a billionaire or something and he put a little asterisk there and said now trillionaire. Like pretty funny.

[Jack]

I'm sure, I'm sure she loved that too. That's exactly.

[Brent Kachuba]

I was a trillionaire. I would just be joking. Everybody killing us.

[Jack]

Yeah, yeah.

[Brent Kachuba]

So normally we move into our projections, but SpaceX is such a hot topic. It just started trading, Jack. So we're doing a little hot take, hot look at the, at the IPO, S&P. This is where the Iran tweet came out and we rallied pretty sharply. And you know, here's where the ice, the Blue is the SpaceX IPO, obviously. So, you know, a lot of gyrations here to start. This is the interesting part about the liquidity situation, right, where you see a mild drawdown in S and P maybe, you know, hard to really mark a whole lot of that. But now the stock and the S and P seem to be getting some footings again. I think the Iran situation seemed to bid things a little bit better, bigger. We're going to get into this one a second. But if you look at the Mag 7 and you're thinking like, what is the, what is the liquidity for SpaceX? Like stuff has to get sold. I think the Mag Sevens have been getting sold for this and I say this because if you just zoom out, they've been beat up pretty well and they have not rallied with the larger markets. So Tesla, Nvidia, Apple, all those names seem to be getting beat up more than, you know, if you look at smh, for example. Show me where the selling is in the smh. Really it's not, not obvious that it's really there. So a lot of stuff obviously churning here. And so again, some stock had to get sold. We're gonna talk about this in a minute. But now the market writ large seems to be finding some, some, some footing. A little SpaceX trivia here for you, Jack. This is the biggest ever raised. So the IPO is gonna raise $75 billion. So it's 550 million shares at 135. The biggest previous was Saudi Aramco. That was $30 billion. I don't know what happens if you adjust that for inflation on a, on real terms, but you know, this is huge. Cerebra, CBRS went out about two months ago. That was 5 billion, sorry, two weeks ago, about a month ago, I guess now that was 5 billion. And that was the biggest IPO since Snowflake. I believe it was snow on 2020. So that gives you a little bit more. That 1.7 trillion dollar valuation is around number eight in the S&P 500. If it was added to the S&P 500 as we know it's not yet just a put that into perspective. Apple and Nvidia are both over 4 trillion and they're the top, top 2. If you put the two Google classes together, GOG and Gogl, that's around the same thing. So you know it has a gap to these top things. 94 times revenue as of right now. Amazing. I think the number there for the retail allocations closer to 20%. I got some texts from, for some, from some friends that were saying they got one share allocated to them and they were excited about that.

[Jack]

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[Brent Kachuba]

How about a creamy mocha Frappuccino drink? Or a sweet vanilla smooth caramel maybe? Or a white chocolate mocha?

[Jack]

Whichever you choose, delicious coffee awaits.

[Brent Kachuba]

Find Starbucks Frappuccino drinks wherever you buy your groceries. The other interesting one, if you Google this, Jack, if you're bored or look around on Twitter, 4000 New Millionaires is what Grok is saying. This is creating, which is an astonishing amount of wealth created. And the IPO was fixed at 135 on the open, but obviously it's trading quite a bit higher there as well. Then you have the fast track to the NASDAQ and Russell. Both of them changed their methodologies to allow this asset in and then the initial public float is quite tight, which is interesting because as they add to the indices they're going to start piecing out more shares of stock. Now we were talking about the CBRS IPO mid, mid May and it was interesting because in Brent's conspiracy corner, what we noted here was cerebras ripped on this day we had just very, very strange 0dte flows and these flows that really pumped the market up. And you're like what's going on? Then the IPO comes out and you can see in the short term that really marked a high for the Qs and the Cerebras. IPO was down something like 50%. It, it IPO'd at around $400 as you can see there. And it's trading for about $200 right now, Jack. So the history of IPOs is pretty ugly and that's been passed around a lot on x. So can SpaceX buck that trend? We'll have to see. But that's just kind of an interesting thing on the topic of freeing up cash, like what had to be sold to free up cash to buy SpaceX, for example, this week we saw really big what we call negative Delta flows in the, in the single stock space specifically. So in here we're looking at the basket of the stocks in the S&P 500. And I'm looking, Jack, at this in here, this line. So in Tuesday onto Wednesday, coinciding with a pretty good market sell off here and some weakness this, this week around Iran escalations and stuff, we saw about $6 billion worth of Delta sold in the S and P equity space, which in and of itself is interesting. It's high, but it's not massive. But what was unusual about, if I just flip to this next chart here, Jack, is what was unusual is in the S&P 500. So S&P 500, that spiders, spX and the E Mini order flow over that same period, that flow was positive even though the market was weaker. So I think there was a lot of stock getting sold this week. We saw in the options flows maybe some attempt to get some liquidity, free up some cash in order to position for this very big ipo. So I think amongst with everything that was happening with the Iran situation, I do think that some stock weakness here could be attributed to the SpaceX IPO launch. And now that that's out, obviously we'll have to see what happens here in the coming.

[Jack]

This is interesting though because people always say that the market's smarter than everybody and that this is kind of a sign of that. Like everybody's expecting like, oh, SpaceX will come out and then the Mag 7 will sell off. Well, the market might've been like, all right, I'm selling them off, you know, in advance. Like I know this is coming, like that sell off people might have expected actually came maybe before the IPO and maybe there'll be more to it, who knows? But it's interesting, like the market always seems to be smart and ahead of these things.

[Brent Kachuba]

And I suspect, you know, people knew for sure or had a good idea of what size of an allocation they were going to get for whatever the reasons may be. You know, liquidity providers as well maybe had to free, free some space up for this thing. So you know, look, this wasn't biblical. Selling in the, in the equity flow was large. The largest actually was on the, on the spasm day Jack when, when everyone gets to give us our flowers for the correlation spasm last week but that was 8 billion so you know, 6 billion in a day or two. Again it's not, not humongous but it was very unusual relative to the index flow. So I do think again you look back at that mag chart, extra weakness generated by maybe having to free up some of that cash is, is kind of the way I'm thinking about it now. Everyone's going to ask and so I'm going to put an asterisk on this. I'm shooting in the dark on this one. But everyone just goes Brent, what do you think? So at a, at a shot in the dark thing if I'm right on this, wonderful if I'm wrong in this one, like don't, definitely don't trade based on this idea. But my sort of best guess here is we actually opened this is hyper liquid which is cool. It showed kind of pre market over the last few weeks is tracking the IPO which came down some. So we opened and we're trading right around in this area. My guess is that Friday into Monday, Tuesday we see the stock move up now into the 200 maybe I don't really have a great idea with that. But the, but the options start trading on the 16th which is I think, you know there's gonna be a lot of volume that's gotta get settled in this thing. And I think the options market, it's gonna be interesting because do people sort of pile in into short dated calls and try to you know, FOMO this thing and squeeze it right off the bat. That's a certain possibility. Right. I wouldn't you know watching that short dated flow is going to be super interesting on the 16th when the options open. And then in here we have the FOMC and then we have Vix expiration and then on the 18th we have this massive options expiration. And then you get the Russell adding it in the NASDAQ. So Russell's going to be around the 20th, 21st. They're quoted as saying they're going to wait five days till after IPO, which is today, but we have, and that's trading days, but we have the Juneteenth holiday on Friday of next week. Right. So that's going to change, you know, make it wait another day. And then sometime prospectively around the beginning of July would be the NASDAQ entrance. Historically when you watch these names get passed off to the indices, the name gets bit up into the index flow and then the indexers kind of buy it at a relative high. That, that sort of seems to be how this goes. Like Marvel's going to get added on the 22nd for example. So, you know, we'll see how that goes. So my little conspiracy corner here is kind of a bit up into next week and then I think when we start to feed it into the Russell, some lockups become available and stuff, then I think maybe that's a time for another, maybe a correction here. Again, shooting in the dark in this. But that's kind of the way that I'm thinking about it. I do think there's so much excitement that a bid initially here is good. And I'm, I'm thinking that the options market opening allows just the degens to kind of like pile in on short dated options and pump it. So we'll see here, Jack. And it's going to tie into some of the other things I'm looking at. But that's again, that's just a shot in the dark, kind of fun for a guess. Whereas I'll put a little more of my ego into some of our other predictions that we make here in the rest of the presentation.

[Jack]

When the, when the options start trading, is it like a full package of options? So if you look at like what's available for like an Nvidia, is like all that going to be available for SpaceX or does it like slowly come out over time?

[Brent Kachuba]

Nvidia has Monday, Wednesday, Friday expirations, you know, so what I guess with SpaceX is they're going to have the weekly. So every Friday they have the expiration. And, and I'm, I'm assuming that it's going to be a pretty standard looking instrument when they push it out. I doubt they'd be doing the Monday, Wednesday, Friday expirations to a brand new instrument. I'm sure the liquidity providers and market makers there are probably saying, you know, give us some standard stuff, pretty wide range of strikes. And I'm imagining that the liquidity is going to be entering into this name very, very quickly. And that's just another thing too. If the float is not all that big. And, and you know, conspiracy corner again, the float here is not all that big relative to what you would normally expect. And then they do the old squeeze them thing, you know, like the short ladder attacks or whatever they used to call an AMC and gme. Right, because they know the float's not that big. Do they try to do some shenanigans? I don't know. Plus it's Elon and Elon always has a way of commenting on things and stirring up the Wall street bets crowd and whatever, be it dogecoin or whatever else. So you know, I, I think it's going to be, I, I, I would rather be long the stock than short it over this next week after that particularly get some kind of insane pump, you know, then I think around that right after that holiday period next week. So it's kind of a time related view there. And this is when the share lockups come. It wasn't specific as to what those share lockups are, but these are the, that come out. Right. Just to give you an idea how these are staggered kind of over time, which I think is another piece of this puzzle. More shares become available as we go out in time and they said they did this in a measured process so these index providers can add it, which you know, allegedly we'll see.

[Jack]

Is there anything that's like you mentioned, like people buying call options, is there anything that's like necessarily positive or negative about options trading? Like I guess on the other side too you have, it's easier to express a negative opinion on this because you'll have put options available. Is it, is it, is there anything about options trading that tells you anything one way or the other is really just a matter of what people are doing once the options are out there.

[Brent Kachuba]

I mean, well, the problem is you don't have a baseline for this, right? So a lot of times we would look at call skews or put skews for example. The implied volume versus realized volume of this thing obviously is just starting trading. So you don't have like 5, 10, 15 years worth of data. And on a sector basis you can kind of compare it maybe to some of these other semi stocks or memory stocks and things like that. But this kind of is like the space frontier thing. So like what bucket do you put it in specifically? I mean you could generalize it as a, as a kind of a high flying tech stock I guess, but you know, it doesn't really have industry peers that are clear for, for sort of some correlation or, or you know, Some nearest neighbor type analysis, I guess I would say so. I think this thing really has got to settle in and, and I think the big thing is the options are probably going to be very expensive on a relative basis is my guess. So, you know, if I was going to gun to head start trying to do something selling some deeper out of the money puts, because I'm expecting that volume to be kind of high, you know, I'd want to try to mine the volatility of this thing. I definitely would not want to be short calls on it, but I think that the, the markets when they start are going to be very wide, the volume is going to be very high, the market makers are going to give themselves a lot of space because I'm sure there's just going to be so much volume and attention. So, you know, Ken Griffin's probably set up pretty good in this situation. I think the average retail trader we'll see and I suspect that the volatility surface that we see on, you know, the 16th, 17th is going to look a lot different than, you know, a month from now when things kind of settle in, liquidity kind of settles in and everybody kind of gets their footing on it. So it's going to be the wild west, I think, to start, which won't deter, I don't think, the retail traders. But again, I would be thinking about selling puts because I want to be trying to get play the volatility of it, which I think is going to come down over the next couple of weeks, meaning the options volatility is going to come down over the next couple of weeks.

[Jack]

I would, I would argue Ken Griffin's in a good position for almost any situation pretty much because Ken seems to win no matter what.

[Brent Kachuba]

I mean, he's looking at Elon's net worth over there and thinking, man, do I suck.

[Jack]

That's true. This is like the one time Ken Griffin could look at something and be like, I've actually failed miserably. I was like looking at this situation, just one, one other quick thing. Do you, do you think when we talk like a month from now, will we be talking about SpaceX like in the same categories like the Nvidia, the Tesla's that are like the king of the option space in terms of all the volume and activity? I mean, do you think it'll pretty quickly move into that category

[Brent Kachuba]

on a sustained basis? I don't think so. Doing a million contracts a day is a remarkable thing. I mean, you know, I could just, we never show my dashboard here, but if you just look at tape here, for example, and we're only about halfway through the day. But Nvidia and Tesla will trade 1 million plus contracts every day. You can, you can basically guarantee it. And in terms of the single stocks and then the next closest is generally like in the high hundreds of thousands, so 750 to sometimes a million. And then you'll have like these rolling hot names that'll do a million or a million half contracts a day. Right. We've seen, you know, Micron trade as many as a million, intel will suddenly pop to a million. Microstrategy, back when people cared about crypto, will trade to a million. So I would suspect SpaceX could start to see some of that, particularly if the Vols are rich and you start to settle in and you get this retail fomo. So, you know, to your answer your question, I think initially you'll see some spasms of volume. One of my favorite terms, obviously over that million contract level. But Nvidia and Tesla have this ecosystem of options flows that's super unique. So on a sustained basis, I think they're going to be, you know, SpaceX will be kind of lagging that a little bit.

[Jack]

So as we move into what we actually talk about here, Brent, we've done a lot of SpaceX here, but what we usually talk about is the flows behind the scenes driven by options. And as you can show in this slide, the options activity has been rising dramatically and there's no signs that's going to slow down, I don't think.

[Brent Kachuba]

Yeah, and these charts are due for a little bit of an update here. But on the 5th, which was the spasm day, we traded 108 million total contracts. That's the second highest ever. So the options volume just keeps surging and keeps going. And so you know that the idea with that is that that matters more to the markets. And why does that matter more to the markets? Well, I should have put SpaceX in here just to be fun. But if we're all out there buying SpaceX calls, Jack, as an example, Elon tweets something, we'll go, oh, I need to buy SpaceX. So we all go buy calls. We buy 10 calls only, fairly small order. The market makers are sitting there and if they sell enough, in this example, they sell a hundred thousand calls. They go, oh, no, let's say those are at the money calls. At the money calls have what's called a 50 delta. And for purposes of explanation here, 50 delta means you need 50 shares of stock to, pardon me, to hedge that position. So in that equation they would need. The market makers would have to buy up to 5 million shares of stock. And they kind of got to do that on the hop. Right? Kind of like right now they're going to take their time for 2, 3 days to buy that. So if enough options start to trade in enough time and you know, there's that liquidity demand, you could gamma squeeze this thing, I think, pretty easily, which is, you know, a very interesting prospect here I think, over the next week, really given the attention this thing is getting and these liquidity dynamics. So, you know, we'll see if this happens. I have not seen anybody talking about these liquidity dynamics, Jack. So I think this is a unique angle that we're talking about here today.

[Jack]

It would be interesting, like to see a gamma squeeze in something like this. I mean, obviously we're not going to see anything like GameStop, because if it went up as much as GameStop, it would basically be the entire stock market. So that I can assume that can't happen at this size, but it would just be interesting to see what it might look like in a company of this size if that type of thing occurred.

[Brent Kachuba]

Yeah. And you know, remember Avis, a car was the ticker about a month ago, maybe a little bit longer. Time is going so fast. You know, there was one fund that apparently had the lockup on this thing, and then that stock went from $80 a share, $100 a share somewhere in the neighborhood, up to about $1,000 in about two weeks. Right. Because people started to the lot. There's no liquidity on this thing. They got it cornered basically. Right. And that situation where there's not that much stock to hedge with, there's not that much float. Right. Is the names that you can jam. People, people obviously like to find big short interest. There's probably not gonna be any short interest, I would imagine, or material short interest on this thing to start either. So that part is not really there. But you know, if you start to think about, hey, we start buying enough calls in this thing and the lockup and the float is indeed that small while everyone else is trying to get liquidity on it, the indexers and everybody else. I mean, it's kind of interesting setup because it's about how many shares would have to be bought to hedge this relative to how much stock is trading. Right. And in this situation, if you're a market maker, you're like, I can't hedge. SpaceX like QQQ calls really.

[Jack]

Right.

[Brent Kachuba]

Because I'm. The two aren't going to be that correlated to each other. Whereas if I own Apple, I could probably hedge it with Q's or hedge it with Google or something like some sort of tech, you know, some other tech name if I had to. But in the SpaceX thing, it has this idiosyncratic risk, which is very difficult to hedge without. The SpaceX shares themselves. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs.

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[Jack]

Yeah, this is, this is the interesting part about this, is how important flows are with respect to the market and options flows and all kinds of flows. I mean, nobody was when Avis was going up, you know, however much it went up, nobody was like analyzing the present value of the discounted future cash flows of Avis and say like, this company's worth like five times more than it was last week. Like, nobody cared about that at all. Which is kind of a dynamic you see, you're seeing in Space X right now. And you see across other things, there's times where just like these flows are all that matter.

[Brent Kachuba]

Yeah. I mean, and this is, this is it. Right? So this was March 24th. So this is during, you know, I mean, granted the Iran situation to come in that much, you know, obviously stock didn't matter. But this is what, this is the, you know, this is obviously an extreme dynamic here. But look at that, look at that move. That's 750%, Jack. And that's, that's one month, right? And then that took a month and then look how long it took to come back down. Right? About, about two, three days, maybe a week. And now we're, it's almost like nothing ever happened. Right. So, you know, these are the type of Situations where I'm not trying to say that you're going to have this in SpaceX, but, you know, on the extreme version, you look at something like this and you go, okay, you know, this is the matter to your point of, of lack of liquidity and people, when people know there's a lack of liquidity, the retail public has caught onto this. I think there's some obviously very smart traders out there, professional traders that catch onto this and it becomes a vector of attack because you want to use that lack of liquidity against somebody else to push the price up. And that's kind of what the idea is here.

[Jack]

These traders like to mess around with these car rental companies. It seems like. Didn't we have Hertz back in the day? It seems like a lot of these are centered in the car rental areas.

[Brent Kachuba]

Yeah, I mean, they're garbagey kind of stocks. They'll have a lot of investors that'll come in and, you know, the name is slipping me. The people want to change the dynamics and try to get a board seat. What activist investors, those types of things. And so I think that's, that's why people can sort of define the lockup or the lockup is easier to, to, to estimate that small on a smaller cap stock like that. Whereas an Apple, how do you corner that thing? Right. Like there's so much liquidity there. It's like obviously much tougher. And then, you know, this is, this matters because if the stock price changes, the delta changes. So earlier we used a 50 delta example. If the stock goes up, the delta increases, which means that more shares have to get bought. So this was the, the, you know, as the stock goes up here, you have to buy more shares of stock. As the stock goes down, you have to buy less shares of stock. So in this example, you go from a 60 delta to 100 delta. So what does that mean, Jack? You'd have to buy 40 shares of stock as the stock goes up, for example. So just because you're hedged right now doesn't mean you're not hedged as the stock price moves. Same thing. If the volume of the move names the implied volume of the options, that changes the shares you have to buy. And then just as time passes, you have to adjust your shares as well. So just because the market makers are hedged right now based on current trading, even if no other options trades take place, they still have to manage the exposure of their book over time. And so that creates persistent hedging flows. And that's something we talk about Often around here.

[Jack]

So as we head to the next one, this is why we do these. We're talking on Friday. Next Thursday will be options expiration because of Juneteenth. And as we head into options expiration, we get some interesting things that happen with flows.

[Brent Kachuba]

Yeah, and the thing to note in this case is that the third Friday of the month is usually the bigger options expiration. But the other thing that we want to make sure we flag here is that this is a quarterly expiration. So that's a big deal. And then you can tell I got a new pen tool here, Jack. I like to really like to flex that thing. So normally OPEX would be on the 19th, but because we have, we have Juneteenth, it's on 6 18. Right. So that's a day earlier. That holiday also impacts the dynamics around time decay and things like that. So that matters. And then the other thing to note is that Vix expirations on the 17th, that's the same day as FOMC. So highlight this area as a possible key moment, right, for big time positions to shift. This is again a quarterly expiration as we're going to talk about here in a second, Jack. It may not be the biggest ever, but it's going to be sniffing around the biggest ever. And so the idea here is as more positions build up into expiration, those hedges that are associated with that expiration get removed and that can oftentimes bring a change in flows. In fact, our stats say that performance tends to flip odds on about 60% of the time, two thirds of the time at expiration. What does that mean? We rally into opex. We tend to sell off after and vice versa. If we sell off into expiration, we tend to rally after and then, and that and then again can be a significant turning point. Sometimes a smaller expiration or something. Or for crashing, you know, that can be a bigger, more impactful turning point depending on your timeframe.

[Jack]

And just to clarify, would there be SpaceX options like expiring next week? I mean they're putting them out like in the middle of the week. There would be some that expire right away at the end of the week.

[Brent Kachuba]

I'm assuming they will have Thursday expiration options available. So those would be the zero dte or short term expirations would be the Thursday options. So it'll come out on the 16th and then there'll be 618 expiration. The other one here is the, the change in rv, this is realized volume. So you know, how much does the market move Right. And, and the key thing here is that look at the change of, of volatility into and out of the expiration. So the takeaway here with these charts is that when you have low volatility environment, it tends to contract even further into options expiration. When you have a high volatility environment, the market tends to get even crazier into expiration. So it sort of exacerbates or magnifies the existing volatility. And then after expiration the volatility reverses. So quiet periods go to wild periods or not necessarily wild, but volume expands and vice versa. Volume is really big. Index ration tends to contract after. So it matters. You know, OPEX is shown to matter both on a price and sort of magnitude or volatility perspective.

[Jack]

So this next chart is gamma and predicted one day volatility. And this is, this is surprising to me because I'm just remembering the spasm we just had. And like I would have expected this arrow to be a little bit more to the left here than it is. But I guess we really came down hard.

[Brent Kachuba]

We came down hard and then, you know, we've rallied sharply here over the last two days with the Iran news. And so we're in a mildly positive gaming environment which says there should be some pretty decent stability in the S&P 500. We're going to talk about the spasm here shortly. But you know, overall it's a market that is fairly well supported right now based on S and P Gamma. A lot of this gamma should be removed at options expiration as well on next week on the 18th. So putting this into size a little bit here, The S&P 500 obviously is the monster here. If you combine Spiders and spx, it's bigger than all the other expiring positions combined. We measure this by delta. So we measure about 2, $2.5 trillion expiring here. You may see some kind of crazy 7, $8 billion number. Goldman is usually the worst offender here. They consider every contract expiring as equivalent to 100 shares of stock, which is ridiculous because obviously if the contracts are super far out of the money, they're worth zero. So Delta tells us the share equivalent. So that's why we like to measure it that way. And you see here we're weighted to calls and it's not yet jack and extreme. We've seen many times together that it's been 80 to 90% call values that are expiring. And that is when I look for it to be an even more impactful options Expiration. The thing I'm watching for here is we could, we could stretch this number quite a bit over the next couple days. Imagine if that MOU deal is signed, Jack, over the weekend with Iran. Then you got the SpaceX thing. Okay? Inflation may come down now because oil's coming down now. Let's just, let's party. And, and you could see a couple days of some pretty wild market action here. So this could change. But you know, right now certainly leaning to the call side, but it's not like a, you know, a record, so to speak, in terms of how big this is. Here you have S&P 500. Again, not the biggest ever, but you know, we're sniffing around one of the biggest expirations ever, certainly on the index side. So this is NASDAQ and Russell, it's a monster expiration as you can see here. So you know, those indices are having a bigger expiration, but this is a fraction, about a tenth of the size of the S and P overall. So yes, huge NASDAQ expiration. And this is gonna be a theme that you see and I think is important for longer term investors who probably have thought about this already. But the performance of the NASDAQ and the way it's been behaving in the last call it one to two months versus the S and P is drastically different than any time I've seen on a sustained basis certainly over the many years I've been doing this. And so we're gonna touch on that here in a couple minutes. But you know, you can see the difference here in size For NASDAQ expiration vs vs s and p. So as

[Jack]

we look at the events coming up here, you've got, you've got the vix, you've got opex. You've also got a Fed meeting next week with the first of the new chair.

[Brent Kachuba]

Yeah, that's right. And there's a BOJ and an ecb. I'm out of other acronyms throughout this thing, Jack, as well mixed in there. And so, you know, the idea here, the S and P is since May opex, we've gone exactly nowhere. Especially if you look at where the S and P is trading right now at around, I believe it's around 7450. So it's been a very flat period here. I ran headlines back and forth, but we had an incredible volatility event, as you can see, kind of mid to early June, which, which really, you know, mattered in the short term. These are, this is why we call these things spasms. That take place because that's kind of what they are oftentimes are these short term spasms where, you know, people kind of black out and then they kind of come to and things recover. Right? Not necessarily these kind of crashes that, that, you know, you have 20% sustained drawdowns out like a 20, 22. Right. So we just came off of one of these spasms and into these events. We're going to have a lot of positions changing and there's going to be a lot shifting around. And so this creates what I call path dependency or I will refer to as path dependency as to how I see things playing out here into July options expiration on this point too, you know, VIX expiration, which is on Wednesday, same day as fomc. You can see here we make interesting lows around VIX expirations into opex. So that's why we refer to the VIX expiration to equity expiration as a window. You know, the VIX expiration, equity options expiration, they can change based on how far out we are to the next equity expiration. So VIX has to be 30 days from that. So you know, equity OPEX first here, whereas VIX OPEX was first in this case, VIX expirations first. So that starts the window, the window's only two days long here because obviously the holiday means OPEX is on Thursday. So normally you have VIX expiration on a Wednesday, Thursday, Friday opex. Now we have Wednesday vixx, Thursday opex, which kind of makes these events a little more consolidated as we get into

[Jack]

the projections from last time. I was just checking SpaceX, it's still about 20% up. So it is surprising me so far. Like I would have expected some more wildness on day one. And we, we've kind of been, we haven't moved around that much yet.

[Brent Kachuba]

You know, there, there's a bunch of interesting stuff around the lockup and can people sell and some things like that. So clearly something's going on here at 168, as you can see. So you know who can sell? Do you want to. Like you were mentioning before, I do think there's some provisions in there. If you sell, you won't get another allocation to a future IPO and stuff. So looks like one big seller maybe at 168 for right now. And, and that seems to be it. So all is calm so far. We're not live streaming this, Jackson. No one's heard our gamma squeeze conspiracy theory yet. So you know that that's, that's critical to note. And the S P overall here is that blue line now and that's holding up decently around 7420 as well. So I do want to really scale market.

[Jack]

I wonder if the technical analysts will already start calling that resistance. We've had what, two hours of, of charting here. I wonder if they're gonna think we've got, you can see a nice resistance line there at the top.

[Brent Kachuba]

I mean, somebody's, somebody's definitely selling stock right there. I mean, you know, you look at that, that lid, right? And I don't, you know, who could that be? There's a, there's a ton of people obviously there's, there's a, there's a decent seller sitting there and you can imagine there's probably a lot of people who have the ability to sell the stock. They've been sitting on the stock for, I don't know, 20 years or whatever it is, and they're like, you know, please let me get some cash. Funny.

[Jack]

But we'll, we'll check in one more time before we wrap up. But first let's, let's look at. We always like to look at what we talked about in the last episode and kind of take a look at what our predictions were and how they played out.

[Brent Kachuba]

That's right. And you know, we get our flowers this week, Jack, because are, you know, this was the bat. The bat signal we like to call it. And, and surefire. We saw it in early June. Core 1M went to 6 lowest since July of 2024. That set up the big spasm they had on the 5th. And so, you know, the, the, that was the big thing around looking for the Vol expansion right around this kind of time frame. Obviously the, the correlation just got so overbid. We had that big spasm and we had Trump accelerating, you know, attacks or, or however you want to state that. I don't even know what you even call this whole situation anymore. So there's all that going on, which is exacerbating things. But, but this whole thing, you know, and I think we anchored a lot on this as being the bat signal for risk off, you know, proved to be true. And, and there's a lot of stabilizing positions to start May opex, which is mid month. You know, you saw these big call squeezes we talked about. A lot of things were in the short dated. But you know, this was, this was the situation. Right. People were getting very excited about call options and we're on the right side of this map. Right. And I didn't include a chart of what did happen. But all the call positions into kind of early June, they all moved over here, right? And what was happening was people were just flying into micron, flying into SanDisk, micron on a premium basis in the option space, started trading more than spiders and the queues, right? So that's how big it got. Like unbelievably big. SanDisk was starting to do some of the same thing. So all of the dispersion across these charts, all of those names went in this box, right? And this box tells you that calls are expensive and everyone is on one side of the boat. And when that happens, you know, you'll note that that core 1M metric that we look at, it will be in its lows. And so this is what I'm talking about here. Core 1M to start June went down here to six. And that is the situation where we go, okay, you know, that's the bat signal that we're going to have a problem. We just need a trigger. I think on that morning, you know, there was a, a little data point that came out and I think it was a jobs number actually came in. Good job. More jobs than we expected. So people go, oh no, that's a rate problem. And then all of a sudden everyone freaks out and all of these things spasm. Right? Now a week later, no one talks about that jobs number at all. Right? But you know, this, this is what broke thing, the, the call fever broke things. And we're going to talk about how it was call positions unwinding that, that really played into that market drawdown here in a second.

[Jack]

So do you treat, do you treat? Core1M is like a very, very short term signal.

[Brent Kachuba]

The, the, the back test is very strong. It's not a huge number of samples here. You know, you can go back to 2024 and count maybe 10 times that it's gone under eight. And eight is just a number that I found to, to, to be an extreme reading. And again, this is an index. So you actually have to look at the data under the hood. But the back test of it basically shows that within 20 days you're going to have a volatility event. Now that could be a 2, 3%, one day drawdown. Kind of like what we had or something like we had last October, November or like In July of 2024 when we had an extreme 3 reading in Core 1M, we had a 10% contraction in the stock market. Right. So, you know, but, but that's the general idea is 20 days. So I personally say, you know, I've trained myself now if it goes under 8, I'm buying 1 or 2 month expiration s and P options, just general S and P puts to give myself some time decay on that right in case I'm wrong, in case it doesn't happen. I know I need to give myself, you know, generally a week or two at least for that, for that thesis to play out. The other thing about this jack is when Core1M goes below 8 like this, it generally syncs with very, very cheap put options. So you're buying puts at very low levels. We talked about this a lot, I think in our last May episode. If you want to dig more into into this idea. Trading at Schwab is now powered by Ameritrade. Unlocking the power of thinkorswim. The award winning trading loaded with features that let you dive deeper into the market. Visualize your trades in a new light on thinkorswim desktop with robust charting and analysis tools all while you uncover new opportunities with up to the minute market news and insights. ThinkOrSwim is available on desktop, web and mobile to meet you where you are. It's built by the trading obsessed to help you trade brilliantly. Learn [e-mail] trading do you hear that? Sounds like breakfast is ready because Quaker's

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[Jack]

So as we move forward here we're looking at, you've got these guardrails here as we look towards the June expiration here next week.

[Brent Kachuba]

Yeah. So in the short term this is what we call our trace map. And this shows dealer positioning. So, so purple on this map means that dealers or market makers in this case they are owning or positive gamma positions. They're long calls in this case. Why are they long calls? Because this is where the funds are selling them and that seems to be pretty thick in this area. So my kind of best case look into next week is a 75, 25 to 75 cents. 75, 75, that's a tongue twister level. You know, if we get the Iran deal, you know, then we pump a little more SpaceX, blah blah blah. Okay, that, that just under 7,600 area is where I'm watching for a potential top into this kind of big expiration situation to the downside where you really want to start watching out is if we lose 7,400 now we move into this, what I call a flat to negative gamma regime, which would be red on this map. That's where the dealer flows start to sell into market weakness. And that's where things can get kind of ugly. And so keep an eye on that 7,400 level into next week as well, because that's kind of our risk off level. And you know, if we're going to say, hey, this market has a problem, it's going to be exemplified by a break under 7,400. And so I think stops should be set there or you want to add hedges at that level. But that, but that is certainly the, the band to watch that 73, excuse me, 7,400 price.

[Jack]

First of all, I have to compliment you because you're like the king of heat map charts. But second of all, like, do you. So that dark purple, is that sort of an indication that as we head in expiration, we'd expect the market to be pulled like into that range? Is that the idea?

[Brent Kachuba]

It works by pulling up and then as we get closer to expiration, Gamma is highest for at the money options, and gamma also increases as we get closer to expiration. So more magnet power into expiration is, is the way to state that Gamma is, is simply hedging flows, right? So more hedging flows tied to that area. As we get closer to expiration, those hedging flows are also there to sort of pin the market down. So you know, to use the finger trap analogy, you start pulling on that finger trap harder and harder, you can't get out. That finger trap gets max pulled. Right. If we're in that area at expiration, right. If we're, if we're lower, then these options obviously decay quite a bit, right? So if we're down around 7300, 7400, those options are decaying and they don't matter as much, right? So that's why you have to be near those prices for it to really matter as a magnet. So what does that mean, Jack? We have to start rallying kind of into Monday, getting that 7, 500 area for these positions to matter. Otherwise they're going to kind of decay and not matter too much. Right? So there's some again, to the path dependency point. We have to start drifting into that area so those things can start to get some traction and have some magnetism to them.

[Jack]

And then as we clear expiration, that dark purple turns back into light purple.

[Brent Kachuba]

That's right. So you see it go like here, you can see the color change quite a bit. That's what this is, this is today's expiration. But these positions are, are large out into next week as well.

[Jack]

So as we get our next chart, we're back to the four quadrant chart and we're looking at this idea that calls are bid.

[Brent Kachuba]

So we had the, we had the vault spasm last week, last Friday, right Jack, and what happened with that is, and, and that's why I included the history here. All of the options that were over here, you can see a lot of them, right? They all have lines that go sharply down. I included this history and the line is simply the history. So you know, here's today for the queues or last night and then one, two, three days of history, right? And, and the reason I include this because all of these names started off last week down here. And then with the Iran situation and some selling we saw this week, remember earlier, Jack, I showed you the options selling flows that came in around SpaceX. All of these names dropped down here. And Then yesterday at 2 o' clock in the afternoon when Trump goes, we have a deal and we're going to sign it this weekend. Apparently then everything just ripped right back up. So if you look at AMD here, it's cut off, but you can see AMD for example, went down and then bounced, right? And now I suspect we're seeing some more bounce today. So everyone very quickly went from max bulled up last week. Correlation spasm knocks everybody back down selling on SpaceX, you know, Monday, Tuesday, Wednesday, and then Thursday we get the announcement of the deal and all of a sudden they're coming back to life. You know, that meme of like the undertaker sort of sits up in his casket. If you've ever seen that, that jif before, whatever, it's like you're like, okay, the calls are back in action. This market is just so much talking or, or trading. Like people just want to start to re engage it like they were into, into the craziness of May, right? I, I can't help but see that in all the charts that I read. And this is kind of one of those where we've just gone full bull again, where you start to get the correlation spasm situation. The core 1M sub 8 thing is when we kind of get a little more extreme, so higher implied volumes, people are paying up for calls a little bit more. You know, we want to see this area move up a little bit more and then we'll have that extreme risk reading again, I think that could happen to opex. And so I'm watching that really rather closely. Do we suddenly get this voracious call bid that that puts us back into this spasm risk situation, right into options expiration.

[Jack]

And what are we seeing? This next chart with IV and sku.

[Brent Kachuba]

Yeah, this is another way of looking at this. And this shows you just over the top 28 stocks in the S&P 500. IV Rank tells you how expensive options are. In other words, how much volatility do traders expect? What was interesting in this environment, Jack, is that the IV has been just going persistently up over time, right? And what a lot of this is is being driven by people buying calls and playing this incredible upside in Micron and AMD and intel and IBM and you know, all these names, right? It's been stock up, volume up in a major way. And that is what has been driving the IV rank higher. IV rank is simply saying, look at the top 28 names. How is their IV today versus the last year? And we rank them. SKU rank is interesting because SKU rank is saying you take the call IV and you minus the put iv. So the higher that this reading is, the higher the rank is. Does that make sense? So the more expensive calls are relative to puts is what the. What drives that SKU rank higher. So you can see here to start, to start June, right? The SKU rank was the highest, has been at least this year you could find it until July 2024. This was the highest reading. Then look what happens, Jack. All of a sudden it is obliterated. Why does that get obliterated? Because everybody sold their calls as hard as they could on particularly last Friday. They continue to sell their calls Thursday, or excuse me, Monday, Tuesday, Wednesday of this week. And that has in a large way kind of normalized things a bit here. Of course, now at the Trump tweet, they're rebidding them again. But that kind of gave the market this sigh of relief. It reduced those spasm conditions we've been talking about. And now my fear is, or my, I shouldn't say I'm scared of this. I'm actually excited if it happens again. They're bidding them back up, right? And they're ending in this, you know, we're going this way again as with Space X and Iran situation being cleared. And so you know, that I want to make sure it's clear here that what I'm trying to say is what caused the spasm last week was the EVISCERATION of super expensive calls. It wasn't that people were like, I want puts. It was like, I, I got to puke out of these calls. And that's, that was what, what drove the craziness of really the last week.

[Jack]

And as we head to the next slide, you're looking at the spasm in more detail.

[Brent Kachuba]

Yes. And so, you know, Core1M, as we mentioned, it went sub 8. In fact, Jack, I think this is what you entitled your video on our thumbnail, right? If Core1M goes like fire.

[Jack]

Yeah, I think I did do something about an indicator or something like that. That works very well, by the way. I've used that twice.

[Brent Kachuba]

And this is the VIX index. And so these two things are very correlated. Uh, you see, all of a sudden we're, we're super calm. Everything is great. The VIX is low. And then this is Friday, right? We have correlation. Core 1M is the signal. It spikes. The VIX goes from, you know, 17ish all the way up into 21, 22 VXN. The NASDAQ VIX went even higher than that. And people are talking about this being one of the most violent one day moves in, you know, history. History has an asterisk to it because it depends on your time frame. But this was that kind of a move where people were second guessing their reason to exist, right? It was such a violent activity. But then, look, it was a spasm and it was done right. It's like if you ever have seen someone going to shock, it's like they're going crazy and all of sudden they're like, oh, what happened? You know, like, you know, that's what it was. It wasn't this rolling bear market, at least not yet. And now things are starting to immediately trend back down, particularly with that Iran situation going. So it's a very short window over the next week. We're already back down to this area in Core 1M. I don't think it would take much for us to immediately get back into this area. And if this coincides with opex, then it's going to be, I think, a great, great opportunity to put some shorts on and play a short term market correction again.

[Jack]

So as we head in this next slide, we're looking at oil. And we've been, you know, I think for like the beginning of our podcast, for the first couple years, we didn't talk about oil at all. And now like we talk about oil in every episode.

[Brent Kachuba]

It's made me and a lot of other people look kind of dumb. Thinking that, you know, oil 115, 120 would, would move markets. It hasn't. But what is true is, is this correlation between oil and rates still seems to hold up a little bit. And I include this because oil's made its lows now since mid April, as you can see here. This is the cl. The future. And, and this is the ten year. The ten year kind of came down, you know, with it over the last couple of days. So this matters because I'm not going to give you Brent's macro corner here today, but with WAR speaking on Wednesday, the CPI was a four handle that just came out this week. If oil's at like 80 and trending lower and there's a deal signed, can you just wave off a lot of the inflation, Jack? Because now oil's back down and people are like, well, you take oil and energy out of the equation and I don't know, like, whatever. And then maybe Wars's job is a little bit easier in terms of not hiking. I mean, we did price in a hike all of a sudden, right? So in December, at least last I checked, that may have changed over the last day or two. So if the deal is not on and oil goes back up to 100 and the rates kind of shift back up, then I think what WAR says on Wednesday could be potentially much more impactful. But again, I'm straying away from my options field. To me it just matters like where is oil into FOMC and that. And then I would expect more or less impact with FOMC accordingly.

[Jack]

By the way, this oil is confounded. A lot of macro efforts as well we've had in the podcast.

[Brent Kachuba]

It's confounded energy experts also.

[Jack]

Everybody, I think, I think it's confounded almost everybody. And that's the question is like what you just said is if this comes back down, how much is the lasting damage? You know, we've definitely had some people on the podcast who think, you know, inflation's going to be with us whether this comes down or not. And also like oil is not just oil. Like this is, it's an input into a lot of different things in the economy. And so in terms of like second order effects and stuff, it's just hard to figure out like this period that it stayed high even if it comes down tomorrow, like how much would that impact be?

[Brent Kachuba]

Yeah, that, that's, that's exactly right. And then, you know, how temporary is this and how much can the U.S. supply? You know, I'm not going to pretend to know all this but it seems like there is, I've not read an energy person out there who has said that this just doesn't matter at all. You know, some, some hindsight and some analysis saying this is why it hasn't mattered. So, look, I don't know because I feel like every month they tell us that we have one month left until it's Armageddon in terms of the oil reserves and the reserves are going down, but price is not reacting. Right. And, and prices, price is king. So, you know, if the reserves are at zero, but price doesn't care, I don't know how much I should care because quite frankly, I don't really understand. So, you know, the, the, the rub here is if oil is still low into fomc, then I think wars is probably a lot less dangerous. Whereas if you start to see oil ripping and then rates are kind of high and then, you know, maybe then that's, that makes the prospect of a hike a little bit stronger. And then suddenly a lot of these rich tech stocks that are, you know, there's been a lot of share issuance and stuff like that late lately as well with these Mag 7 companies. And so, you know, a lot of dynamics are going to get shifted here if those, if that rate picture changes. So we'll see. That's it for Brent's macro corner.

[Jack]

Well, we'll do Jax now, because I was just thinking like the Fed meeting here. I mean, obviously I don't think people expect them to do anything this meeting, but I think the commentary will probably be important, first of all, because it's a new Fed chair doing his first commentary, but also like in terms of what they're indicating in terms of different elections they're leaning or how concerned they are about inflation. Like I think all of that commentary will be interesting. And then you've got in the backdrop the idea that Trump, although he said something about he doesn't care about inflation or something recently, like he sort of put these people in with the idea that like I want rates lower. So it just, it's a whole interesting dynamic. I mean, neither you nor I or the macro records have any idea what's going to happen, but it's just interesting to watch it.

[Brent Kachuba]

Yeah. And these probabilities have dropped. I'm just looking at Fed, Fed watch here, the CME 56% chance of a hike in, in December as of right now, and that number was, I think over 60 a couple days ago. So if I have that right, I'm looking at it kind of quickly here. So Apologies if that's wrong. But point is is that I, this is a rapidly changing situation. A lot of that is tied to obviously the, the oil situation I think as well. So, you know, we will, we will see what happened there and then, you know, everyone wants to say the midterm Trump bid. So we'll see on this point. One of the interesting things that you can use to see how much the market believes, you know, the Iran situation or not is Vol. And yesterday when Trump tweeted we saw what's called fixed strike volume just absolutely tank. We lost, you know, one or two volume points like that, which is, which is a lot. So the market really seems to believe that this tweet is a, is a real one and that, that indeed there is some kind of a deal. And the equity market obviously, as we talked about before, shot up. People went back into long dated calls so that clearly, even though the market wasn't tanking on the Iran, you know, flare up again, it definitely breathed a sigh of relief, at least a strong partial sigh of relief, you know, with everything that happened or with that tweet this weekend, if we get that deal signed, then suddenly you're going to see the VIX collapse, I think, and Ball is going to collapse and that will be a bid to, you know, that's going to put a bid into stocks. So why does that matter? Because the VIX right now, you know, it's around 20ish roughly last time we looked jack in and one month realized volume is 15 and so one month realized volume, normally if you add three to four points you get the VIX number. That's the average spread between spx, one month realized volume, the vix. So that would make fair value for the Vix around 19. Now last week before the spasms, one month realized volume was like a 12. So what does that mean? There was a big gap between where the VIX was and where the S and P realized volume was. And then look at five day realized volume, Jack, it's at 27 because of all the spasm, that big spasm. And then we've had some pretty violent swings in these last few days. So volume has jumped a lot now that we have this Irene deal, the volume has come in quite a bit and if you look at the spread right now it's a four between the VIX and one month realized volume. So it's back to the average as of now. But if the deal is real, right then you would expect that volume to contract quite a bit. And so the VIX could come shooting back down. This is what we call Vanna rally, right. Where that index volume comes down and that allows the market to keep rallying. Index volume coming down is also a core 1m input, right? Cause the lower the index volume goes and people start bidding up single stocks. That's what creates that spread that starts to break things. So this is the setup for forced to get into that situation that the call options can break things. We have all the ingredients, then we have the big holiday coming up. That's why I kind of think the week after OPEX is one that I'm watching for, you know, potential correction. If we get that strong rally here over the next couple of days at

[Jack]

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[Brent Kachuba]

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[Jack]

So on this next chart we're looking at again at the events and we've got, we've got a lot of different events and a lot of different directions we could go here probably depending on what happens with them.

[Brent Kachuba]

Yeah, and you know, we, we talked about these events here and the, the challenging spot is, you know, do we get the deal or not? If there's no Iran deal and it turns out to be some nonsense, I don't know how the market reacts but you know, do we spasm into the end of July stuff? I'm not sure. But what is interesting about this, we, we always mention the J.P. morgan collar position. And so Jack, here we are having to mention it again. I'll tell you this on Tuesday, Wednesday, this strike really seemed in play. Seems a little less in play now cause the market's rallying. But the reason I'm bringing this in is because at the end of the quarter, so 6:30, the JP Morgan strike is right around 6900 in the SPX. Obviously that coincides with the giant 7000 strike and people love large numbers of support. So you know, if we have some type of a spasm or the Iran deal isn't real, or maybe we get an FOMC says look, inflation is ridiculous, I got a hike. Or he indicates that and we have some type of event. You really got to watch that 6,900 to 7,000 level into June as like a big risk off kind of support zone. And so, you know, pay attention to that. Use that as a, I think a potential bottom in the event of a violent risk off. Now things are not really necessarily going that way. So you know, I'm not loving this idea. But if we do start to slip, if we lose that 7,400 level, then really pay attention to that area into the end of the month.

[Jack]

So in the next slide we're back into SpaceX and I just checked and it's up 30% now. So we are, as I continue to live stream it, we are up a little bit more.

[Brent Kachuba]

Yeah, and, and this is something that is super interesting to me because there are, there are times where tech outperforms the, you know, the other sectors obviously. And that's been a, that's been a function of, look, the top 10 names in the S&P 500 are kind of the same in the top 10 of the NASDAQ. Right? And they're mostly tech stocks. Okay, yes, some are technically communication services, but you know, Google, Amazon, Tesla, app, they're all tech tech stocks. Right. The outperformance, sustained outperformance here of the Qs versus the S and P is what we're showing here. And you can see, granted this is only about a one year chart. They've really tracked each other. Okay. You know, NASDAQ starts to outperform a few percent here or there, but look at the separation here now, Jack, you know, you're talking 12% over the last two months. And what I think is interesting about this is obviously SpaceX going into the NASDAQ in about two weeks, not the S and P. So you know, if the SpaceX IPO just continues to get bit up for some reason and maybe XIA gets XAI gets revalued in some incredible way or who knows, right? If the NASDAQ is incorporating that. Right. Does that just start to leave the S and P in the dust? It's such an interesting idea. At the same time, you know, you want to give a nod to The S and P for not changing their methodology to just sort of get some sort of, I don't want to say overvalued because I don't know but on paper it looks a little bit overvalued here at 94 times. So you know, you had tip them for that. But at the same time the, the, the performance dispersion here is really incredible. The reason that I bring this up from an options perspective is the difference in volatility implied vols that I'm seeing. The difference in options prices is somewhat staggering. You're starting to see that the two used to basically track each other more or less. NASDAQ was always a little bit higher in terms of volatility or options prices. But now that spread is really widening quite a bit. So what's happening is people are bidding up these big AI names, right? Micron, amd, we all know those names that is totally jacking up the prices of like SMH, for example, those ETFs. And you're seeing it just really infect the volume of the, of the QS as well. Those options prices are surging and so the QS are now starting to trade much more differently than, than like the nat, than the S and P and the Russell. Right. They're, they're, they're just, they're, they're changing their, their, their tone I guess is the way that I put her. Their complexion or I'm not exactly sure how you would state that but you know, they're trading in a much different way. And so there's a divergence here between the two, between the SpaceX obviously being added. And maybe it could be this incredible thing where maybe the NASDAQ starts to each More of the spider's lunch. If you go back to the opening chart of the difference in size between the S and P and the nasdaq in terms of notional value trading, S and P is bigger than all the other options complexes combined. Right. And so is this kind of like one of these moments where you start to see on a relative value basis or relative volume basis or positioning basis that that NASDAQ positioning really starts to pick up? I think it's a super interesting idea. We're not going to be able to answer this question, I don't think anytime in the near term. But, but with SpaceX being added, I suspect it could become a dynamic that, that strengthens over time as opposed to weakens.

[Jack]

And the thing with adding it to the S and P or any index, it's such an interesting debate like I mean, most of the people we follow who's had in the podcast are thinking S and P made the right decision by not adding it. And I can totally understand that. I mean, typically when these indexes are adding these companies, it's, you know, it's the wrong time and it's, it's bad for the investors in the index. But you do have, the other side of it is like over time. And the S P is not geared to do this technically, but people do use the S and P as like a tracker for the overall US Stock market.

[Brent Kachuba]

Right.

[Jack]

And if you're using it as a tracker for the overall US stock market at some point here, SpaceX is going to be a pretty reasonable percentage of that and you're not going to have it. So it's just interesting to think about the. I'm happy I don't have to make that decision, but it's interesting to think about the thought process and to your point, like the Nasdaq, that the difference between the NASDAQ and the S and P becomes greater now. Right, because SpaceX goes in the NASDAQ but it doesn't go in the S and P. Yes.

[Brent Kachuba]

And I'm not old enough to remember this, shockingly, and Jack, I don't think you are too, but you know, our parents, you know, you quote the Dow, right? That's what you quote. And no one really mentions the Dow outside of maybe like Jim Cramer.

[Jack]

Right.

[Brent Kachuba]

Like it doesn't get mentioned. It's S and P is the benchmark. And so, you know, these transitions do happen every once in a while. And I, and I, you know, I think it's a super interesting again thing to watch here as we develop over the, as things develop here over the next, you know, weeks and months.

[Jack]

So as you wrap up here, you got a summary of, of the key points.

[Brent Kachuba]

Yeah, the summary is, I think valuable so that when we do our little look back, it matters. But you know, there's the index thing and, and this is the, this is the distinction if, if the deal is actually signed and then particularly if we see that core one eight below eight, I think that's a possibility here, a strong one that we get that voracious call bid again. Then I think, you know, the other thing is when you have the three day holiday, volume tends to get sold anyways. So you could just see, you know, Vix just get absolutely, just crushed. S and P implied volume just get crushed and people just sort of go great. And they pile in onto this kind of start of summer week. Is in a way what this is, right? In a lot of ways. And so, you know, we could have a massive volatility crush and that Core one M could dive. And I think if that dives into that holiday weekend that could be, you know, the time to say I need to add some protection, right? The, the opposite is, you know, there's so many headlines around this Iran stuff. Iran says no, there's nothing. I mean who the heck knows, right? If there's for some reason no deal next week, I think that things start to get very confusing very quickly into fomc. We're going to lose all this options positioning as well. International markets could get rate hikes, you know, bank of Japan and ECB I believe as well. So you know, who knows what cross currents are coming from that. So you know, that is a, that's a tricky dynamic and so I have a hard time reading exactly what could happen in the situation because of these exogenous events. So that's kind of what I'm, what I'm thinking about ultimately what I, if I did odds of something, the way it looks right now is keep rallying here and people go a little FOMO into OPEX on, on Thursday. Particularly again if worse is kind of like rather dovish or flat or neutral or whatever, then okay, great, we can keep round on Thursday. And that I think could be a short term market high, particularly if that core 1m is below 8. If core 1m isn't below, we just trend. I really feel at some point between when you and I talk that core 1m is going to go below 8 here. Assuming again there's an Iran deal and then that will be the short signal. So maybe that comes a little bit later in the month. But I'm really watching that because I just think the calls are just going to get super bid again and that's going to be the sign that we're going to have something kind of snap. Right? So that's what I'm watching there. In a bad deal, you want to watch that 7,000 J.P. morgan area by 7:30. And then, and then lastly, just my shot in the dark on SpaceX, the gamma squeeze chasey FOMO behavior into kind of like next Thursday. I think that could be an interesting one. It's a good setup. It seems like low liquidity, a lot of people can't sell lock up, blah blah, blah. Great, let's, let's buy all these short dated options and squeeze these people to see what happens. So we'll see what happens, you and I I don't think are enough of influencers to. To move any markets here, Jack. So we'll see if.

[Jack]

I think we're moving absolutely nothing.

[Brent Kachuba]

We're the tree that fell in the woods on this idea.

[Jack]

Yeah, that is very true, but it's still. We give it our best shot. So as we wrap up here too, you've got a little deal on Spot Gamma too you wanted to let viewers know about.

[Brent Kachuba]

Yeah. So if you go to spotgamma.com trace- Reloads-hub we're offering 50 off your first month. Just use code HEATMAP50 and you can get that deal. Thanks for that opportunity, Jack. And that'll be it. So I don't know about you, but I got my one or two lot of SpaceX. And if we do rally into the 18th and Gamma squeeze this thing.

[Jack]

Did you get some?

[Brent Kachuba]

I bought some just after the open year. I gotta play with everybody else. Why not? Let's see what happens. Okay.

[Jack]

Yeah. Nice. You want to say you were part of it, right? It's much. It's much better to say you were part of it and you experienced the whole thing.

[Brent Kachuba]

Yeah, it's a good time. And you know, I think the game of squeeze thing has some merit to it. So, you know, we'll see what happens. I could be in and out of this thing 20 times by then. Sometimes I just get bored and maybe it's the name that's moving the most. So, you know, a big path within here and there. But please don't take anything we said here as investment advice. It's just fun.

[Jack]

No, definitely never under any circumstances.

[Brent Kachuba]

I'm sure you're more excited 1990, but I could be in and out of stuff. So, you know, there's our disclosure.

[Jack]

I'm sure you're more excited to play with the options anyway when they, when they finally come.

[Brent Kachuba]

Oh yeah. How do you not trade those options if you're in. In my seat? I'm sure people are gonna be going crazy. Yeah.

[Jack]

So I'm sure you'll be one of the first.

[Brent Kachuba]

You know, great for the options business. So anyways, thanks very much, Jack. I appreciate it. And I guess we'll be seeing in a month. It's gonna be a very interesting setup here in a month.

[Jack]

Yeah, we'll be able to talk about what happened with SpaceX and what happened with everything else. So thank you everybody for joining us and we'll see you next time. Thank you for tuning into 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

[Brent Kachuba]

have any feedback or questions, you can

[Jack]

contact [e-mail] no information on this podcast should be construed as investment advice. Securities discussed in the podcast may be

[Brent Kachuba]

holdings of the firms of the hosts. You can't reason with the sun. Trust us. We've tried. This summer, it's time to put that angry ball of fire on mute. Columbia's Omnishade technology is engineered to protect you from the sun's harsh rays that can burn and damage your skin. The sun is relentless, but so is our gear. Level up your [e-mail] to spend more time outside and less time slathering on aloe lotion. You're welcome Columbia. Engineered for Whatever

[Jack]

Ryan Reynolds here from Mint Mobile. I don't know if you knew this, but anyone can get the same Premium Wireless for $15 a month plan that I've been enjoying. It's not just for celebrities. So do like I did and have one of your assistant's assistants switch you to Mint Mobile today. I'm told it's super easy to [e-mail]

[Brent Kachuba]

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