The Two Tailed Market Risk | Brent Kochuba on What the Options Market Tells Us About What Comes Next

Summary

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Excess Returns Podcast Summary

Episode: The Two Tailed Market Risk | Brent Kochuba on What the Options Market Tells Us About What Comes Next
Date: November 16, 2025
Host(s): Jack Forehand, Justin Carbonneau, Matt Zeigler
Guest: Brent Kochuba, Founder of SpotGamma

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Episode Overview

In this episode, the Excess Returns team and Brent Kochuba dive deep into the intricate dynamics of today’s markets, focusing on how massive option flows and narratives around AI-driven mega caps are shaping risk and influencing both volatility and long-term returns. The conversation balances big-picture macro with granular options insight, discussing the peculiar market regime of late 2025—where both left- and right-tail risks loom large, “real” selling may be eclipsing options-driven flows, and events like Nvidia’s earnings have outsize potential to move markets. They also break down practical strategies for expressing market views via options structures in an environment defined by uncertainty and shifting sentiment.

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Key Topics & Discussion Points

1. State of the Market: Sentiment, Speculation & Macro Overtones

• Market Still Near Highs Despite Negative Feeling
  • Only ~3% off all-time highs, but feels “gross” across macro, credit, and equity.
  • “Things feel really just kind of gross right now across everything. But the market's only like, I don't know, sniffing of all time high. But it feels really bad.” – Brent (03:01)
• AI Mega Caps Dominate Indexes
  • 35-40% of S&P 500 and NASDAQ are tied directly to AI mega-caps/semi/chip stocks.
  • Passive investors are more exposed to the AI trade than they may realize (15:58, 17:06)
• Speculation & Financialization Resembling Past Manias
  • “Dash for cash”, levered ETFs, crypto, and odd speculative spikes (e.g. biotech to crypto treasury pivots), compared to the dotcom bubble and housing bubble run-up (06:07, 07:13)
• Macro Uncertainty Now Driving Everything
  • Simultaneous selloffs in diverse assets (gold, bitcoin, bonds), indicating macro/credit “spasm” rather than pure options flows (39:15)
  • Government shutdown, policy ambiguity, and absence of key data (like CPI) compound uncertainty (41:27)

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2. Options Market Dynamics & Their Influence

• Options Volume at Record Highs; Retail’s Role Grows
  • Options trading volume continues to outpace stock volume.
  • Debate on whether retail drives more volume than institutions; nuanced by algo-driven small-lot trades (19:49–22:16)
• How Options Flows Move Stocks
  • Market maker hedging for retail/institutional flows can result in substantial buy/sell pressure on underlying stocks, especially when small trades aggregate into big exposures (22:23)
• Expiration Cycles Shape Price Action
  • Options expiration (OPEX) acts as both beginning and end of market cycles; major repositioning post-expiry (24:06)
  • When volatility is high into expiration, it often contracts post-expiry and vice versa—a “mean reversion” dynamic for both price and volatility (24:06–25:55)

Chart & Data Highlights

• Implied Volatility Spike Around Nvidia Earnings
  • The S&P 500 term structure shows a concentrated implied vol spike between Nvidia’s earnings and major expiries – a rare event for a single stock’s influence (17:40)
  • “The market is really dependent on this earnings event to keep this narrative intact.” – Brent (17:54)
• Negative Gamma Intensifies Moves
  • Options positioning (gamma) now amplifies moves—market makers buy into rallies, sell into declines, adding to volatility rather than dampening it (50:47–52:07)
• Current OPEX: Modestly Sized, Highly Put-Skewed
  • November expiration: relatively small compared to December, but the most put-skewed in a while—unusual compared to recent call-dominated cycles (28:52–30:18)

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3. The “Two-Tailed” Market

• Right Tail: Relentless Rally Potential

  • If Nvidia earnings are strong, could see a market “slingshot”—short covering, positive flows, index magnet to 7,000, especially as options positions unwind and liquidity returns into the Thanksgiving week (59:15)
  • “If Nvidia earnings are good…there’s plenty of room for a pretty serious bounce here.” – Brent (59:15)

• Left Tail: Accelerated Downside

  • If Nvidia misses, AI/credit narrative breaks further: potential for rapid downside, credit events, lack of obvious support, and intensifying risks until December expiration (59:15)
  • Risk of price-insensitive put buying to hedge credit/bond exposures (49:53)
  • “If Nvidia misses…the problem there then is…all that stuff starts to come under question in a major way. And then people can start going like what's the growth story in the United States? Just period.” – Brent (59:15)

• Options Risk Pricing is “Mid-Range”

  • Skew and implied vol are not extreme; neither puts nor calls are being heavily bid despite declines—implying “real” seller flows might be at work (55:48)
  • Provides both potential for sharp rallies (if no crisis) and vulnerability to a big volatility jump if fear sets in

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4. Application: Trading Approaches & Options Strategies

• Call Ratio Spreads for Right-Tail Exposure
  • Example: selling a 6700 call, buying two 6800 calls in December — aims to benefit from a large rally while neutralizing some vol risk (67:37)
  • Buying outright calls penalized by high implied vol (vanna risk) unless there’s a violent move up
• Caveats with Downside (Put) Protection
  • Buying puts is expensive and risks rapid decay if volatility collapses; put spreads may mitigate but are still challenged unless Nvidia’s reaction is truly negative (67:37)
  • “You need Nvidia to miss and you need a really nasty reaction in order for these puts to pay off.” – Brent (67:37)

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Most Notable Quotes & Moments

• On Market Anxiety:
  • “I feel sad, Jack. There's a lot of weird stuff going on… some other stuff has been like completely destroyed...I don't know, it's just a really weird market.” – Brent (03:30–05:12)
• On AI Dominance:
  • “Even if you're like well I'm in the S&P 500, you're actually just basically in the AI trade... that's all that is.” – Brent (15:58)
• On ‘Two Tailed’ Market:
  • “I can make a very easy case for this market to be at 7,000…But at the same time…if the options market hasn't woken up yet in terms of buying into hedges and it does, then we're going to go down another 5 to 10%...you can make that case very strongly in either direction.” – Brent (37:37)
• On Options Market Not Always Being The (Only) Culprit:
  • “I'm sitting here thinking like ah man, I don't know, this is like, this is a non options event in some ways... There is a lot of interesting data that we could still look at here…” – Brent (03:57)

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Important Timestamps

• 03:01 — Market still near highs, but macro and market “feels gross”
• 06:07 — Speculative “grift,” financialization, & retrospective market insights
• 15:58 — AI mega caps dominate indices; S&P 500 = “just the AI trade”
• 17:40 — Nvidia earnings drive S&P 500 term vol; market tied to one event
• 19:49 — Options volumes outpacing stocks; retail vs. institutional flows
• 24:06 — Options expiration as start/end of hedging & volatility cycles
• 28:52 — November OPEX: most put-skewed expiry for some time
• 39:15 — Simultaneous selloffs in multiple asset classes: macro/credit event
• 49:53 — Absence of big put buying; downside from actual sellers, not hedgers
• 50:47–52:07 — Negative gamma defines options market’s current impact
• 55:48 — Vol and skew in “mid-range” — open to movement in either direction
• 59:15 — Key scenarios: Nvidia earnings as inflection point for right/left tail
• 67:37 — Practical options structures (calls, ratios, and put spreads) for both tails

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Episode Tone & Takeaways

• Frank, self-reflective, and at times humorous (references to memes, kids’ slang, bro culture)
• Willing to acknowledge uncertainty, complexity, and fundamental “weirdness” in today’s markets
• Stresses humility in forecasting, readiness for both wild rallies and rapid panics, and the need to adapt positioning accordingly

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Conclusion

This episode is a must-listen for investors navigating 2025’s risk-on/risk-off regime. Brent and the hosts pull back the curtain on both options flows and macro risk, challenging assumptions about what drives markets day-to-day. The major takeaway: uncertainty is as high as it’s been in years, with options exposures, macro shocks, and narrative shifts intertwining in unpredictable ways. For those making allocation or trading decisions, flexibility, awareness of positioning, and understanding the mechanics of both left and right-tail risks is critical—especially with major events like Nvidia's earnings at the market’s fulcrum.

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[End of Summary]

Transcript

[A]

Hi, I'm here to pick up my son, Milo. There's no Milo here. Who picked up my son from school? Streaming only on Peacock.

[B]

I'm gonna need the name of everyone.

[A]

That could have a connection. You don't understand. It was just the five of us. So this was all planned. What are you gonna do?

[B]

I will do whatever it takes to get my son back.

[A]

I honestly didn't see this coming.

[B]

These nice people killing each other.

[A]

All her fault. A new series streaming now only on Peacock. Extra value meals are back. That means 10 tender juicy McNuggets and medium fries and a drink are just $8 only at McDonald's for a limited time only. Prices and participation may vary. Prices may be higher in Hawaii, Alaska and California.

[B]

And for delivery, the use of options by investors has risen dramatically since 2020. Although many long term investors like us may not use options, we are still impacted by the flows they create in markets. Many of the moves in the market or individual stocks that we see on a day to day basis are often driven by flows related to options. To better understand these flows and how they impact all of us, we started a monthly podcast, the OPEX Effect with our good friend Brent Kachuba, the founder of Spot Gamma. We have included our most recent episode in the XS Returns feed. If you want to keep receiving new episodes, you can subscribe to the OPEX Effect on all major podcast platforms or.

[A]

Our YouTube channel using the links in this episode.

[B]

Description thank you for listening. We hope you enjoy the show.

[A]

35 or 40% of the S&P 500 in the NASDAQ is tied directly to these kind of Mega Cap AI semi chip names. And so even if you're like well I'm in the S&P 500, you're actually just basically in the AI trade. You can make that case very strongly in either direction because even though we're selling off, fall's not over expensive right now. Like people aren't terribly piled into puts. That's why we focus so much on this Nvidia earnings. Because narratives aside, I don't really care is are people hedging that event? You know, are guys like Citadel or Optiver or whatever like quant smart, you know, incredibly smart people, Are they worried about that event and if they're worried about it then tells me it's important. It's hard to read this and say hey Vol's too expensive or hey Vol's obviously too cheap. It's really right in that middle spot where you know this is where things break. But also There's a decent premium you could sell to help jack the market up. So, you know, it's a, it's a weird. Again, it's a. It's a weird situation.

[B]

So, Brent, can we say volatility is back?

[A]

I don't know.

[B]

Like, I feel like it might be back.

[A]

It is back. I'm laughing because I think that's. For the last month we had like incredible volume. It's like, oh my God. And the next day it's like fine. Then the next, you know, two weeks later. But this seems different. We were just talking about this like something. Things are weird.

[B]

Like, is it, is it possible? Like I was looking right before we got on and I did the calculation quick. Is it possible like the S P is only a few percent off the highs? Is that right? I mean, I feel like more than should be a lot more than that. But then when I look at the numbers, it's like it's not that much.

[A]

Yeah, there's nothing but straight facts coming from you today, Jack. It's like, you know, it's like 3% from all time highs. I mean, we were within 2% of 7,000 yesterday. We were sniffing that level. And then, you know, we, we took the slide lower it. You know, it feels. This is like a statement about the world. And, and I was saying this, Jack, before, like, I don't want to. There's certain things or certain terms or topics that I want to broach here because I don't want to deal with like the hate mail. Even though we say send hate mail to you, but I'd love to receive it. Things feel really just kind of gross right now across everything. But the market's only like, I don't know, sniffing of all time high. But it feels really bad. I don't, I don't know. Can I, Can I talk about my feelings in this? Yeah.

[B]

Oh yeah, we can talk about feelings on here. Obviously it's a therapy session if you want it to be. Right.

[A]

It is. I feel sad, Jack. No, there's.

[B]

And we've probably talked about this a lot. Like there's a lot of. There's a lot of weird stuff going on. I mean, obviously, like to your point, in real life, there's a lot of weird stuff going on, but there's weird stuff going on on in the markets too. And you know, and some of it. And maybe I think from what you told me before, we won't be able to explain all of it this time, but some of it can be explained by options. But some of it can't be explained by option. It's just an interesting dynamic in the market I would say right now.

[A]

Right. And I think one of the best ways to lose 75% of the viewers is to say that this is not about options right now. But as someone who is constantly pound on the table like options are doing this, options are doing this, options are doing this. I'm sitting here thinking like ah man, I don't know, this is like this is a non options event in some ways. There is a lot of interesting data that we could still look at here and I think for the macro viewers out there and more fundamental viewers out there, you're going to be able to pull some things from this. But this is part of the weirdness, right? The, the fact that like Tesla for example, Tesla's down like what, 12% over the last two days or whatever and it's like no one's buying puts. You know, there's just this puking which I have a concern that is a lot more credit related maybe than and bond related than or rated related I should say than some other things. So you know, there is just a lot of uncertainty here and I think what you end up with is, is an icky feeling, right? Because everything is uncertain and to this point you're talking about like cpi, you can't even get a CPI data print out. So you know, you can't even parse through what's going on. You know, if you wanted to. I guess.

[B]

What'S interesting too is like certain, it's like there's still some degree of speculative behavior going on. Definitely like probably a good amount of speculative behavior but some other stuff has been like completely destroyed. Like on the speculative behavior point it was interesting. Like there's a stock, I don't own it, but there was a stock I tracked. It was like a biotech that was like, you know, it wasn't, it was in the less than $1 range because whatever their trials didn't work out and they thought maybe there'd be some future trials that would work out. But like this week the biotech converted to a zcash crypto whatever you call it, treasury company. And it went from like it was up like 500% on that day. So like this random biotech stock becomes like a crypto treasury company and like the Winklevoss twins got involved or something. Oh my gosh. I was looking at it like on the chart like what the hell just happened? And that's what it was. So like there's still that kind of stuff going on. Which kind of brings you back to the dot com era when anything added dot com to their name like it went up. But by the same token, like other stuff is getting destroyed right now. So I don't know, it's just a really weird market.

[A]

I think you highlight one of the core features of this market, just general asset regime is just the financialization of everything levered etf, crypto, speculation. And a lot of it feels like grift at the end. Like it's not about the stability of the system. It's sort of like how can we just make some money out of nothing dash for cash or whatever. It's just a, it's, it's odd, man. And that's so funny. And when you think what made me laugh about that is like if you're gonna write a book, right, and you were gonna, your, your kid would read the book in five years and, and look back and be like, wait, you guys did that? Like, that is so obviously a bunch of, you know, bs. Like, of course it was a signal that, you know, this whole thing is, is a house of cards. You'd be like, well, yeah, of course it is. But at the moment you're like, well, how can I, you know, what grift do I have to play next to, you know, try to keep up with the mark, you know what I'm saying? It's like this, this is the stuff.

[B]

That, like when we look back at the dot com thing from 2000, some of that stuff, it's like, obviously this was a huge problem. Yeah, that's a great example of the same thing. We're going to eventually look back and.

[A]

Be like, yeah, the housing market giving money to, you know, whomever was looking for a loan. And here's unlimited loan. Like, what do you, you know, what do you do for a living? Oh, you know, you don't have any actually recorded income. Great, here's a million dollar mortgage. You know, but the problem is, you.

[B]

Know, we could just as easily be in 1996 as we are in 1999 right now. And that's, that's the challenge of it is like you will look back in retrospect and be like, this stuff is crazy, but you don't know when you're going to do it. Like, and it could go on for, it could go on for years before we eventually do that.

[A]

Yeah. And it feels just as bad to see the market run away from you or an asset run away from you and here on X or whatever that like, you know, I made a million dollars today on this biotech stock that went to crypto. It hurts a little to miss that.

[B]

So, yeah, yeah, like, to me, I'm like, oh, I should have bought that biotech stock, but I really had no reason whatsoever to buy that biotech stock. And if I did have a reason, it certainly wouldn't be because I thought it was going to convert into a crypto treasury company and go up 300%. So I would have been. It would have been complete luck if it, like, worked out for me. So I can't really look back and, like, say it was a mistake because I. There was no. I was just following it. There was no basis to do anything with it.

[A]

Yeah. And as a value investor, you're pretty used to the pain of seeing stocks just run away from you.

[B]

I am, yeah. Yeah. My retailers in the mall or whatever, we're not doing that. Maybe they'll convert into crypto treasury companies. That maybe the value stocks will start converting to crypto treasury companies. And that will be the key to values like resurgence, will be a complete conversion to crypto treasury companies.

[A]

When we have a deflationary collapse, the value stocks may be all that's left. And then we can change this podcast to the Value Effect. And then.

[B]

Oh, yeah. Well, we'll flip things around. You'll interview me about my value investing.

[A]

I like that.

[B]

So people have probably heard enough from us on this now, so we probably should get into the option stuff.

[A]

Yes. Now that everyone's.

[B]

And by the way, I like the Star Wars. The Star wars is great.

[A]

This time I was trying to jazz things up, you know, in this age of short attention spans and everything. Now we've blabbed for 20 minutes or whatever it is on nonsense. We had the. The K Pop Vault hunters before. I don't remember what I did last episode or the last slide, but this one is the famous scene, if you're listening to this, of Princess Leia and she's asking Obi Wan Kenobi for help. And I can't find a better parallel than Nvidia earnings coming up on Wednesday and us saying, hey, Jensen, you know, you are the only one that can save us. And I honestly think there's a ton of truth in that. I say it kind of tongue in cheek, but. But that's kind of what it feels like. If there is one last hope, it is that Nvidia can save us all from certain collapse.

[B]

Yeah, I guess it's not out of the question that they will. I mean, videos delivered a lot of these times when these. When the markets kind of needed their earnings.

[A]

Yeah. And there's a lot of narratives, right, that are. That are folding right now, and unlimited chip sales or GPU sales or whatever it is can. Can maybe turn the tide back in favor. And on that point last month in October, we were joking about the fact that kind of like the crypto thing, if you mentioned OpenAI for any reason, your stock just leapt. Like it just like. Like PayPal mentioned OpenAI and like, hey, I did a deal with OpenAI for this or that, and stocks would just go crazy, right? And it was sort of this sign of ridiculousness. But the reason I kept. And this was the slot I used last time, the picture on the left is because, man, how fast the story changed in the matter of just like a week or two, right? Like, all of a sudden we went from AI is everything, and there was these pictures going around of the kind of, like, Nvidia in the middle and Open Air in the middle of this sort of debt kind of circle or triangle. Are you familiar with that chart of going around?

[B]

Yes.

[A]

And all I can think of from this. Have you ever seen Silicon Valley and did you watch that show?

[B]

I didn't know.

[A]

Okay, you won't understand this, but they designed this software called Middle out, and that's all I could think about. And it's a little too. If you know what I'm talking about. You know what I'm talking about. Jackie, don't. So I'll stop and move on, because it's also not PC. But the point is, is that there was this narrative all of a sudden that just shifted from, you know, like, unlimited AI growth to, you know, this was the headline about the United States has to bail out these AI companies or whatever. And you're like, wait, what? What. What are you talking about? How could this be possible? And then you start to see this now, like Oracle, which was sort of just about a month ago, the poster child of AI success and TikTok and all this stuff. And now their credit default swaps are really surging, as are some of these other names. And, you know, that narrative shifting and that unease and that uncertainty just kind of. I don't want to say it came out of nowhere, but it's just like the sentiment just changed on a dime. And. And that's kind of what we're dealing with right now. And that's why we need Jensen Huang to sort of say, like, okay, it's all right, everybody. Like, the growth story is still here and make us Believers again.

[B]

Yeah, it kind of reminds me of Deep Seek, like at the same, like in Deep Seek, we just got over it. We moved on. But like, the question is, will we this time? We just did an episode with Kai Wu on this. It's, it's really interesting. Like, if you look at this AI Capex spend and you kind of look at it relative to history and you say like, did it work out in other periods, you know, the railroads or the Internet? And there's just a lot of interesting conclusions from that. And it seems like the market is starting to think more hard about like, is all this money actually worth it?

[A]

Yeah. And I think there was another Chinese model that recently came out that was trained for, you know, a lot less than, than expected. So you look at the free cash flow of the, of the Mag 7 names and the AI names and you know, the story is really, you know, just change like that free cash flow is going away. And then people are like, well, we're gonna have buybacks now because of the free cash flow story. You know, so again, it's a real transition or transition sentiment transition, right, that, that we're going through right now. And as this relates to options, it's interesting because again, we usually talk about the fact or I talk about the fact that like options are doing this and options are doing that and options are doing the other thing. Look, look, look, look. And this one, there's not a lot of options flows that are supportive of kind of how violent some of these single stocks have come down, which to me tells me that there is a, A, A, A push for people to try to sell, sell their stock and sell their investments, right? They're, they're starting to, to liquidate and pull away. And it was interesting cause I started to put this slide deck together and then Charlie McElligan put out his Nomira Note and it, and it echoed some of that. He, he says it in a much more eloquent fashion. But, you know, I was happy because I was like feeling weird about the data. And like sort of it screams that, you know, some other things are going on. And he put it sort of nicely. It's sort of like a race to get out first, right? Like, if you've been long AI stocks in this period and suddenly the narrative is shifting then, you know, you got to quickly sell because you may be up 40, 50%. Some of these names. We just lost 10% in the last day. So, you know, that doesn't, that doesn't feel well, if indeed the, the top is in so again, transitory period here.

[B]

Yeah, the idea though, it's, the idea is like real selling might be a little bit more predictive of the future than if everybody's buying puts. Like there might be more of a chance of reversal if everybody's buying puts versus if there's actual legitimate real selling behind the scenes.

[A]

Well, I think that it speaks to like the sentiment change, like the real money selling is a sign that, you know, you think about the, the tailwind of stocks and there's just been this tailwind for the last five years of every dip is bought, AI is going to continue to succeed. It's the driver of economic growth here. And investors were just happy to kind of ride that out. Right. And so you would get a lot of kind of volatility around the trend higher. And I think that's where the options market would step in. Right. We get overbought and then we moved a little oversold, but the trend would still be higher. And I think the concern here would be, look, the AI story, the foundation that all this is built on, you know, seems to be sort of crumbling or the picture is just not the same. And so you lose that tailwind of, you know, the trend higher. And I think to me that's really what the, what the problem is. Doesn't mean we can't have a crazy short covering rally here. But if you don't have like the fundamental real money buyers, you know, moving into these names, you know, what is the growth story, right? And so the idea of buying dips and selling every, selling every little volume pop as a source of alpha may change if you lose that sort of fundamental buyer. I think that's the thing that everyone has to think about into Nvidia earnings and kind of into the end of this year as we look towards understanding if, if all this capex is warranted.

[B]

Yeah, just as we get to this chart, like you probably saw Michael Sembla state on this. I mean everything about the market has been AI. Like the earnings growth is AI, the cash flow is AI, the performance is AI. And like we had Bob Elliot on yesterday and he was talking about this idea that like if you look at the S&P 500 equal weight as kind of a measure of like the economy, like that's not doing much of anything because the economy's kind of just like trudging along here, you know, not doing much of anything. And that's sort of what your average, you know, stock is doing as well. It's like AI has been the entire thing that's held this up. So to your point, as we get into this next chart about Nvidia's impact, like, it's really, really important when that is the trade that's driving the market.

[A]

Yes, 35 or 40% of the S&P 500 in the NASDAQ is tied directly to these kind of mega cap, AI semi chip names. And so even if you're like, well, I'm in the S&P 500, you're actually just basically in the AI trade. Like, that's all that is. And I don't know how much like the average investor thinks about that. Like, if you are just sort of like passively investing in your foreign every month because you work at whatever, some corporation, you know, you don't maybe understand that, like, you are basically just long the trade like everybody else. And that's worked out really well and, you know, maybe continues to work out and maybe we all should hope it does because that is the only real growth driver in, in the US right now. And then you start to think about just this idea that like, we have to build like the agentic, you know, AI or whatever first before every other country. And so there's like this weird, you know, national security issues. Like, it's a complicated web to weave. And so, so you wonder like, okay, if AI starts to falter, do you just get like cash injected from, you know, like the government? It's like, I know I'm going like way off topic here, but it is this like growth story. And it feels like, I guess what is different about it is like the, the, the US economy arguably wasn't dependent on pets.com in the 2000 being, you know, the main growth driver. I don't think in the same way that we're just very dependent almost a fundamental perspective on, on AI here now. So again, we've strayed completely off topic here and we've lost, I think, 90% of the audience.

[B]

Well, the commenters will let us know if we got too far here.

[A]

But as he's like, brent, stay back. Get back in your lane. This guy.

[B]

This is an interesting chart here in terms of like Nvidia's impact on, you know, volatility in the S&P 500.

[A]

Yeah, so what this is, is Ford implied volume. And Ford implied volume is essentially a way of just modeling what the, what the volatility is between expirations. And so the fact that you see this big jump, right, for Nvidia's earnings date, specifically, Nvidia reports the night of 1119 and so the, the implied volatility for the Nvidia earnings is between the expiration between the 19th and the 20th. That makes sense. So we look at what the implied volume between those two expiration dates and it's extremely elevated for the S and P. That's quite unusual in relation to a single stock earnings. You don't really see that with any other single stock earnings. And this really just speaks to the fact that there's this volume spike here. Really just speaks to the fact that the market is really dependent on this earnings event to keep this narrative intact. Now on the same day we have VIX expiration, which is going to be more important as the VIX spikes higher. And then obviously we have OPEX on, on the following Friday. So there's this cluster of events that's critically important. And then Jack, this is going to come up later. But if you look to the right, you see how that Ford implied volume below the term structure. So this is the S P term structure which is the S P volume. So we go from above to below. Why are we below? Because we have Thanksgiving, right? So you go into Thanksgiving and you have the holiday and a half day. And so generally volume is sold into those periods. Right. And so the sort of the time, the time series here or the path dependency of the way that things play out matter given the fact that we have Nvidia earnings, OPEX and then a holiday. Right. That, that really can craft the response in the market movement I think over the next month, which is critical here into year end. And so as we get back on our track here, I hope that people will take away the importance of the, of the timing of these events.

[B]

Yeah, and our first section of charts here all about why options are so important. And so this first one is. And I think I just saw Chris Citl just tweeted something like some more stats about how, how crazy options volume is. I should have put, brought them up here. But like it's. Anything you look at is like options volume is grown dramatically and it continues to grow.

[A]

Yeah, exactly. And the argument here is that the options volume is outpacing stock volume. You make the argument that stock volume is going to increase because of hedging flows related to options. And so you know, this is just sort of the financialization of everything as people move into some of these products like options. And you know we, we love options trading here, so I hope this trend continues. But you can get incredible risk reward, sensible risk reward using options trade. So it makes sense. It's not all about, you know, sort of leverage and gross egregious speculation. Like there's a lot of great reasons to trade options. And, you know, that's being adopted in a lot of ways. New entrance to the market and more sophisticated retail trading. And I know the chart you're talking about with that Chris had posted, I think it's a Goldman chart that just basically says, you know, monthly options volume hit another record in October, essentially. So the volumes keep growing.

[B]

The basic idea here, by the way, just about that is it said in there that retail volume is now larger than institutional volume in options. I didn't know that. If that's true, that's pretty crazy.

[A]

Yeah, you know, I don't. I think they extrapolate some of that from some of the brokerage data out there. You know, there's some reporting from Robinhoods and things like that. I think some of it also gets a little skewed maybe because what, what you do see is an increase in algo trading. So I think there's more small lot trading out there than there used to be. So I'm not completely sold on this idea that it's retail over institutions at this point, but I do think retail options volumes are growing. I mean, we see a lot of retail community come into spot gamma. So I do believe that is true. But I'm not yet sold on the idea that retail is bigger than institutions to that point. If you go to our Twitter or X handle, you can see there's a ton of trading. Yesterday in Tesla, for example, you know, someone was just selling essentially about two, $3 billion worth, $2 billion worth of deltas, right? And they did that in one lot options over the course of the day. So they just put it in algo and basically just like percentage of volume that trade over the whole course of the day where it's just like, sell one, sell one lot. Sell one lot. You know, just in an algo again, the whole entire day. And so those shows up at as one lots tagged as a customer order. And you know, is that really deciphered as a retail trade because it's a one lot, whereas we know it's part of a much bigger trade, right? This what ended up being about 100,000 contracts. So that's the type of flow that I think could be maybe mislabeled or misallocated sometimes.

[B]

So this next slide gets this idea. Whether it's retail or institutional, when people are buying these options, hedging flows get triggered and the whole process goes on behind the scenes.

[A]

Yeah, and the point here is that a lot of small orders can add up to be a lot of exposure for a market maker. Market makers are 90% of the US volume, so the liquidity provider for 90% of the volume. So in this case you have a bunch of individual traders putting in orders for AMC calls, basic options at the money option as what's called a 50 delta, which means that to hedge you need 50 shares of stock per options traded. So if a hundred thousand calls trade either from one entity or a bunch of retail guys putting orders in, that can be as many as in this case, 5 million shares to buy of AMC. And if that's a rapid fire order in a fast market, the argument is that trading from the market makers, that hedging has to happen now, right? They don't have the luxury of waiting. So you can imagine in that case, 5 million shares, that's a lot of stock. So that is the driver or that's the transmission mechanism from options trades into the impact of the underlying stock. And then of course, these trades have to be, or the hedge flows have to be adjusted. So here's just the delta we were talking about before. But the delta changes as the stock moves, right? So that's called gamma. You have to adjust those shares buying and selling to keep yourself hedged. The delta or the hedge ratio that shows 5 million shares would also change as implied volatility shifts up and down. So in a market where Vix is at 30 and then goes to 10, that's a signal of implied volume changing. As an example, hedging flows have to change because of that. And then lastly, of course is time as we get closer to expiration, that makes you adjust those deltas again. So you start with 5 million shares, but through time passing and implied volume moving around and the stock moving up, down, you have to adjust those hedging flows constantly, right? Which is the flows that we monitor here to assess those, those impacts.

[B]

And this next slide gets to why we're here today, which is this is going to come out on November 15th. The following Friday will be options expiration. In many ways, that expiration is both the beginning and the end of a cycle.

[A]

That's right. So on the third Friday of the month tends to be when the bulk of options positions expire. And then we'll start focusing on December. There are a lot of December positions, but as we get closer to December, more trades get tied to that expiration and then the hedges associated with those positions build up. And then all of a sudden we kind of crescendo at expiration, all these positions get wiped out, all the hedges have to get unwound, and then we sort of start a new cycle. And there's evidence that there is price and volatility impact in these cycles. In fact, this time what we see is that two thirds of the time S and P performance flips after opex. So if the market is rallying into opex, it sells off after and vice versa. Now what's interesting here is that this has some dependency whether VIX expiration occurs before or after opex. In this case, VIX expiration falls before. So you can see the odds slip a little bit there of that price flip, but it's still better than 5050 that you get a price flip. And of course, this data doesn't necessarily extrapolate when options were expirations were really large, like a quarterly expiration versus say a smaller monthly expiration. And for all intents and purposes, this is a little bit of a smaller options expiration. We talked about also the change in implied volume. And what this is showing you here is that when you have high realized volatility into an expiration, so this is the change in realized volume, volume tends to contract into expiration and then expand out. Right. So what that simply essentially means is stocks tend to get penny into an expiration and then release or volatility releases out of an expiration. Now what's interesting about this is that you can also see in data that involves spiking into an expiration volume, mean reverts or sells off or contracts after expiration. So that mean reversion factor seems to also exist in volatility as it does in stock prices.

[B]

And as we look at this next chart, I mean, we're as far to the left as we've been in a while, right? In terms of volatility.

[A]

Yeah, exactly. And so what this is measuring is how much gamma do we have in the S P on the x axis and then the Y is one day forward volatility. And so there's a really an amazing correlation between these two. And the point here is that options positions as a driver of volatility exist in the short term period, right? And so we're all the way to the left where gamma is quite negative. And that is a driver of volatility. Now the argument is that if options positions are removed, right, Then gamma should reduce, right? Because if, if negative gamma is driven from put buyers, for example, and puts expire, well, that gamma should go away and then volatility should Reduce. So that syncs up with this data here that shows that volatility tends to mean revert. So, you know, we're in this position where gamma is a driver of volatility. I don't think it is the cause of volatility here. Sometimes I do think it is, like if you look at earlier in October, some of those spasms, but here it is an additive or sort of a turbocharger on volatility as opposed to the underlying cause.

[B]

So in this next slide, we're looking at some of these events we've been through and some that are also coming up as well.

[A]

Yeah, so we mentioned before about the interesting spasm that we had in October 10th, right, when Trump tweeted and the market broke, Right. And there were such a bizarre call skews or heavy call skews into that period. So when I was talking about options as a cause of volatility, I fully believe that was October 10th. And even a little bit later into the end of November when we had that volatility, it was kind of a similar thing where we had kind of a similar spasm. Right. But we're ending up here. As you can see, the market is having a pretty decent drawdown. I mean, it was only, you know, two weeks ago, though we had a much sharper S and P price drawdown. Right. So even though this feels really bad right now and it feels gross, S and P is not doing all that bad. Right. But the point here, and the key here is that we're going to move into this period, right, where there's a huge Nvidia earnings along with the big VIX expiration in November, opex. So if you see a scenario where the market just pukes into that VIX expiration. VIX expiration removes a lot of expensive VIX calls, people roll their positions, it reduces hedging flows, and then maybe Nvidia earnings are great, and then suddenly you could see just a ridiculous rally off of just the flows of that volatility sort of being sold. Right. And obviously opex, you know, you know, coincides with that as well. So the weird, the weird one's going to be is if Nvidia misses or reinforces this idea that markets are that. That the story is indeed sort of done right, you know, then that is a much harder to parse situation here. So we're going to talk about that. But the fact that Vol's getting, breaking out here into an expiration, I think is, is good for bulls. Assuming that the Nvidia data is good Because I think that ultimately this could be a real, you know, slingshot opportunity if Nvidia earnings are okay.

[B]

Yeah. Looking at the behind the scenes data on this expiration, I mean I think this is, and you have it in the title here, put skewed. This seems to be the most put skewed we've had in a while.

[A]

Yeah. If you think about recent presentations where you know, we're getting 80, 90% of the value of options were in, in, in calls. Right. This is a total state change from that in the fact that when you're looking at the index positions, which is NASDAQ and Russell for example, those are very weighted towards puts same thing in the ETFs and single stock steps, only 60% in calls is actually very skewed. Right. Normally you're in the 90, 80, 90%. So this is indeed a put heavy expiration and it's not a massive expiration. Here's the delta value by expiration. So here you see the next week's expiration. It's dwarf, you know, it's only about a third of the size of December expiration. So this is not a, a, a massively pivotal expiration at this moment. If stocks continue to obviously decline and volume continues to spike, then the November importance kind of picks up. However, I think that this expiration is somewhat supercharged by the fact again that the VIX complex is more active at the moment. VIX as we're talking is right around 20 to 25, somewhere in that neighborhood. And then obviously the Nvidia earnings. Right. So you know, you have the situation where normally you'd be like this is a decent expiration, you know, not all that big of a deal towards. This is a much bigger situation, you know, given the earnings given and given the market drawdown.

[B]

Back to the previous slide, is there anything to read into this idea that the S and P is the most call heavy and as we work our way down it becomes more put heavy?

[A]

It's a weird factor I would say and what I would read into this is that yesterday, only yesterday we were above 6,800 and we were very close to all time highs. Right. We were only maybe 50 bips off of all time highs on a closing basis. So I don't think, I think that people were caught quite flat footed by yesterday's selling and we broke the 6800 level which was, and look, we were leaning, I had a, I had a bullish leaning into yesterday and our risk pivot, we call it, was 6,800, meaning under 6,800 things can get ugly. And I didn't expect us to cross that. We did. And once we cross that level, you know, it's just this vacuum right now. Futures are rallying back pretty sharply right now. In fact, we're unchanged after being down a percent. So the reason I think calls are not more heavily weighted is simply because of the fact that the market wasn't positioned for that. And so I would expect this data which is based on last night's close, Thursday night's close to change obviously today. But you do bring up this point where oftentimes we're 80%, like we're very heavily, you know, skewed towards calls. And then there's a much bigger kind of response when there's a sell off because of the fact that everyone is like over their skis on the call side. And you don't get that at this moment. Right. It doesn't really feel like that at this moment. Which again is a reason that it's hard to pin options as a major driver of what's happening yesterday and today.

[B]

So I'd assume on the next slide December will probably be the largest ever, I would guess, probably.

[A]

I mean the options market just continues to grow and December is always the biggest options expiration. So you know, there's a huge expiration coming up, big FOMC with a lot of uncertainty. You know, if we do rally again, that's only going to drive call values even higher. So you know, there, there is the potential for this to be the biggest expiration ever. It's going to be a very interesting year end, I think more so than usual given the rate uncertainty in the AI story. So, you know, long way to go before December opex but quite potentially the biggest expiration ever.

[B]

So before we look at the current expiration, we always like to look back at what we've looked at in the previous thing and see what was right and what was wrong.

[A]

Yeah, and I like to celebrate what I got right and ignore what I got wrong. So we'll try to focus on that here. But we, you know, we're talking about the concentration of stocks. We just started this conversation off with our diatribe about that 38 in the top S P. And you know, we were, we were trying to describe why the October 10th spasm was just so volatility or options driven and call volumes, as you can see here, went bananas. People are just piling in, piling into the, you know, trades we all have been discussing here. Correlation, which is a metric that we watch for risk. Such a key metric for risk. It just kind of, kind of sums up where it distills all the things that can go wrong when people get too piled into single stock calls that hit our lows for risk off. You can see here the 1010 spasm. The result of that crazy positioning we had, you know, just records in terms of how fast we went from total calm to complete panic, right. In the course of just a day, right. And so when you think about this sell off here where the options market wasn't that oddly positioned and like yeah, we're selling off but like it's not that and the index side is not that violent. There's some single stock violence, but we're not positioned for like a crazy unwind. It kind of pushes more to this idea that there's something fundamental going on in terms of fundamental sellers maybe stepping up in a way they have it right. So you know, that's a key thing here. Again, looking at the realized volume, the position from risk on to risk off is also an interesting one here, right, because this trail shows us the ten day of history. And you saw all these names that were on the, on the right side of this chart. Smh, Google, smh, spider cues, et cetera went from hey, we love calls to we, we all need puts, right? And that was like this thing that happened very quickly. We're going to touch on a similar idea here shortly. You know, the, the reset of implied volume from like really low to sort of moderating. So you think about what October was and it was this resetting of we were way too bullish, calls were way too bid and then we sort of had this spasm and things reset. You know, if you remember that too, then the market kind of retrenched, right? Here's the spasm where we were talking about October. Opex. OPEX hits it clears out all these positions and then you can see like there we go, there's the rally, right? Sell off into OPEX and we rally out of that. So you know, you can see all these pieces really come together in terms of an options market that was screaming overbought and now you know, and then, and then moderated after, right? Hello friends. Guess who? That's right, it is I, the replacer. Once again I've been called on so you can play the new Call of Black Ops 7. With three expansive modes, 18 multiplayer maps and the tastiest zombie gameplay you've ever freakin seen. Call of Duty Black Ops 7 available now, rated M for mature. The family that Vacations together, stays together. At least that was the plan. Except now the dastardly desk clerk is saying he can't confirm your connecting rooms. Wait, what?

[B]

That's right, ma'. Am. You have rooms 201 and 709.

[A]

No, we cannot be five floors away from our kids.

[B]

The doors have double locks. They'll be fine.

[A]

When you want connecting rooms confirmed before you arrive, it matters where you stay. Welcome to Hilton. I see your connecting rooms are already confirmed. Hilton for this day.

[B]

And then that tail risk, both sides thing is interesting because that was. We've had macro guests who've kind of.

[A]

Who are looking at it in a.

[B]

Completely different way but say the same thing. Like it seemed to be like this two tailed market and it probably still is, I guess.

[A]

I mean you can tell me, yeah, 100%. And you know this is the Ford implied volume out of October. And you know we had these data points where we had you know, PCE and Fed. So like all those typical data points that add a little bit of volume. But this picture all got screwed up by the government shutdown, right? So you know, on one perspective it was like this is what you're forecasting. Then we get the longest shutdown in government history which is sort of like throws a wrench in all this. But I would note here is the Nvidia earnings right way out here as a key event. Right. And that's not me saying it's key event. That's the market pricing in a lot of volatility around that. And so you know, that's why we focus so much on this Nvidia earnings. Because narratives aside, I don't really care is are people hedging that event? You know, are guys like Citadel or Optiver or whatever, like Quant smart, you know, incredibly smart people, are they worried about that event? If they're worried about it, then tells me it's important.

[B]

Yeah, and it's interesting like on, on the macro side, like you could really make a case for both tails right now. Like I could make a case that, you know, if you think about like in 2000 there was like this Barron's article I think that talked about how the Internet companies were running out of cash. And that's what some people say was part of what led to the topping process. You could argue, well that's kind of similar to people are looking at this AI spend now and being like yeah, is this really going to produce any money? But then on the other side you could make the case that this is such a transformative technology that we've got years ahead of us. It's just interesting and this is obviously you don't think in those kind of longer time frames with options, but it's just interesting. You've got that two tailed case on the macro side as well.

[A]

Yeah, without a doubt. And when I think about the two tailed market, just from the shorter term time frames, I can make a very easy case for this market to be at 7,000 in and I'm going to make that case, you know, in within a few weeks. Right. So you, you have a problem if you're short or not invested because the market in this kind of financialized, you know, System with levered ETFs and options flows and all sorts, you get this incredible reactions where the market just suddenly rips 5% and, and you're left behind and 5% is material. Right. You don't want to be sitting there in the end of the year saying oh, I just, I sold all my stock and I just missed this rally. Like that's, that doesn't feel good. But at the same time like, well, geez, you know, where's the defined downside right now? And quite frankly, I just don't see it. And if the options market hasn't woken up yet in terms of buying into hedges and it does, then you're like, well man, what is this? Like we're going to go down another 5 to 10%. Right. You can make that case very strongly in either direction because even though we're selling off falls not over expensive right now, like people aren't terribly piled into puts, which is my risk indicator. So yeah, you have this really kind of tenuous again anxiety feeling around, you know which way this thing's going to go because it's sort of like, you know, there's going to be a pain trade. Right. And, and you just want to be on the right side of that pain trade.

[B]

As we move into November, it's interesting this idea of no asset is safe because one of the things we run is like we run some of these really diversified strategies that are not just stocks and bonds and this other stuff. And one of the things you've noticed recently, and this might get to what you're talking about the chart is like some of these other things have been selling off too recently. It hasn't just been, there's been a lot of different other things. So you could talk about what you're saying here.

[A]

Yeah, one of the things I do when I'm, when I'm looking at how markets are performing and I'm sure a lot of the other traders, investors, listeners do the same thing is, you know, I'll look at the S and P S P's weak and then how are other assets performing? Obviously, right? Is there a correlation? Because I, I want to be able to describe what's happening in an accurate way and if there are other assets that are, are moving in correlation, then I start to worry about things being more of a macro driver than an options market driver. For example, so if Bitcoin is stable and gold is stable and the bond market's not really doing anything but Vol's freaking out and I know the options positions are all out of whack, then I feel better about identifying options as the primary driver. Now in this case, I was, I was honestly pretty surprised. Look at gold this morning and it's down 2%. And you know, it was, it was breaking out and it was looking so strong earlier this week. And you think to yourself, well if the story here is the concern about, you know, uncertainty around the government and the shutdown and, and, and you know, we need a safe haven and all these other things, well, why is gold getting pummeled, right? And then when you look at Bitcoin, it's getting pummeled and you look at the bonds, right? This is the 10 year bond, it's going down as well. So yields are kind of creeping up and you go, okay, like clearly there is a macro event happening right now because of the fact that all these assets are moving in such correlation with each other. And so that's one of the reasons why, where I will step back a little bit and say, okay, options as a driver here are clearly, you know, they're not in the driver's seat. I think they can exacerbate volume. But I want to be honest and clear headed about, you know, what is the fundamental driver here. Because if the options market is not big enough to turn things around, right, and this is about rates or credit defaults or whatever it may be, then I don't want to sit here saying, well OPEX will clear Vol out in the market, a rally because of that, right? You know, ultimately if the credit market breaks, like it doesn't matter what the options market is doing, right? So it doesn't matter what equities are doing, for example. Um, so the fact that all assets are dropping is just something we have to flag and pay attention to. Like, like clearly there are, you know, there's a, there's a, some type of a macro, macro spasm. Is what it seems like.

[B]

Yeah. And this next slide, is this one of these weird things, which is we haven't had data. Like, you know, you and I have talked about a million CPI reports on here. Like, we're looking forward to the CPI report. And then like, it's weird when there isn't the CPI report.

[A]

Yeah. And, you know, in April, I remember sitting there thinking, like, this is actually like, normally the market's selling off and they're kind of like, whatever, okay, fine. Like 2022 is like, whatever, April. I was sitting there for a minute like this. This is actually could be one of those times where it's like, you start to worry about, like, you know, like, should I close my bank account and put my cash in, like, you know, in a box in the backyard or something like that. And right now it just has that feeling of just like, what the heck is going on, man? And. And so, you know, I just wanted to. To. To mark some of these things. I mean, the Trump approval rating and. And again, send your hate mail about anything related to this to Jack. Jack@jack harris.com. i think it is his email, but.

[B]

They'Ll leave it in the YouTube comments, friend.

[A]

Yeah. And like, look, look, the ratings are down, right? And the reason I bring this up is simply because I think a lot of the policies and things like that that we were expecting out of him, all of a sudden, like, I don't know, it just seems, like, unclear. Right? So, fine, there's disapproval, there's anxiety around that. Government shut down all our stuff. That's uncertainty. Doesn't matter how you feel about it. Things are much more uncertain, I think, there than they were. If you look at rate probabilities, I feel like the economy is not doing that great. You see job losses or people say that, or I don't know. But now rate probabilities have gone from, you know, we're definitely getting a cut from a week or a month ago to 5050. Right. Well, who likes 50 50? Nobody. So you can't really count on that out of the Fed. We talked about the credit default swaps. Oracle, you know, is the story that everyone knew about. Hey, the credit default swaps there are spiking. And then Core Weave comes out earlier this week with their earnings, and now their credit default swaps are apparently just, you know, surging. Yet. Intel and Amazon, some of these other ones are up a little bit. I don't know that it matters quite as much right now, but, you know, this core Weave thing really seems. It's Just sort of like put a stamp on, on AI as a, oh, you know, situation. That stock's been, excuse me, absolutely crushed. You know, you got Sam Altman on this podcast making some weird comments as well about OpenAI and their debt and stuff like that. So it's just, you know, it's just been pretty ugly. And then to top it all off, you go, okay, great, like, well, let's get the CPI report so we can see how inflation is doing. And they're like, we're not going to give you a cpi maybe ever. And so then you just go, well, geez, you know, what, what am I, what am I even supposed to do at this point, right? It's just like the uncertainty is compounded by even more uncertainty and markets understandably don't like that. Right? So the, the manifestation, I guess, of all of this. If you're going to take away the liquidity punchbowl here and you want to talk about loss narrative crypto, Right now, crypto, IBIT and ETH A are the two big ETFs, and those volumes were consistently top 10, top 15 in the US option space. They've gone away, right? Nobody even cares. And I always laugh about this because when you look at some of these charts, my daughter always likes to make this joke when she walk in with something's crazy. She was like, bro. And that's kind of like what this is like, you know, what is going on here with crypto? It loses a hundred. And you know, when you look at micro strategy and microstrategy is just like the sort of manifestation of the crypto bros, like people quitting their job because they just believe that the microstrategy yield is just so important. And they. He financialized himself to death because he was trying to monetize the volatility of micro strategy by selling convertible bonds. And then the convertible bonds squashed the ball so he can't sell. It's like this is a bananas situation. You're like the story says, under 185, like they start to have problems, right? And so, you know, this is just like the punching bag or like the canary in the coal mine. Maybe. I don't. I'm not entirely sure. But it's interesting because if you talk about loss of a narrative or sort of like the reflexive buy, the dip seems to be broken in the crypto space. And crypto tends to, in my view, lead risk assets, right? If you're going to step out in the risk spectrum, crypto that, you know, it's a Sign of liquidity. Like if liquidity is not really going to be offered by the Fed, you know what's going to help prop up? Bitcoin. And then I think the other thing too that's important is, you know how many people were invested in crypto as like the next asset class. And if you talk about struggling economy people just not feeling good again, I'm getting way off of my track here. But you know, you go like, well if you're already struggling and can't really get a good job or whatever it is, and then your crypto, your, your little crypto portfolio blows up. Like, you know, that's just more, it's just more bad feelings.

[B]

My kid, my kids are doing the bro thing too and I, I have no idea where it comes from. Like these things just come like they start in the schools and then they start doing it and then they change to something else. I can't really figure it out.

[A]

Yeah. So if you don't have kids, you probably don't get that. I guess just be happy I didn't write 6, 7 on this report because that makes me want to go to the top of the roof and jump off. Your kids do the 67 thing. No, I don't know that one. I did readers kids around saying 6 7. You think it's something more material than that? It's not, it's just something there to. I, I guess it's. What do you call the Japanese suicide by honor, the sepico or something? You know what I'm talking about.

[B]

Oh yeah, I know what you're talking about.

[A]

On another word. I heard I have math teachers nowadays I guess are just sort of like if I hear six seven one more time like self suff. Anyways, send your hate mail not too jack.

[B]

But. But back on topic like the, yeah the sentiment thing when you were putting up the previous sentiment slide like what it was gonna look like now. So here, here's kind of our, our look at what's going on there.

[A]

Yeah. So before in, in October, I showed you the 10 day change in our trail. This is the three art trail. So earlier this week, pre kind of core weave earnings, everyone is on the bottom right of the chart. What does that mean? Bottom right of the chart means people are pricing calls over puts. People are bowled up. What has happened in the course of three days. All of a sudden it was like, I love my Google amd QS coinbase, Tesla. I'm, I'm in right to. Oh no. And we are now bidding into puts. So the, the More on the left of this chart, you see we're more, more of a put bid and then volume is picking up the more we go up. Now the Vols aren't really super expensive yet. This is based on last night's data. So today may be a little bit of a change there. But the point is the same, is that we really went, we had the state change right, from like pretty bullish to like pretty bearish in the matter of just two days. You can see this and this is the narrative breaking and falling apart. Now. All that said, like Tesla's down again like 10% as an example. I haven't checked Google recently. It's not down, you know, quite as much, but you know, 10%. This is, you know, if I was gonna look at where this Vol is positioned, that's not that bad. Like 10% in a day is kind of like you would expect volume to be higher and you expect to be more of a, of a bid to puts right given that type of dynamic, you know. And you look at like core weave which is down 20% or whatever, and the volume just not really that high. Which again speaks to this idea that there's more of a, of a real money seller out there necessarily than a kind of a put driven spasmodel on the same point, the gex. So if you're familiar with positive and negative gamma, this line is the gamma by strike right across all expirations. And if you remove so so much of a flow now is 0dt. So if you remove today's expiration, you get the dotted line and what you see is we're negative across the board, right. So there's no positive game that offers stability or support in this market is the first thing to pay attention to. But the second one is you see how the dotted line is just flat all the way to the right. Excuse me, all the way to the left. There's not an increase of put positions that are driving kind of like negative gamma to the downside. So a lot of times you'd see this curve look like a ramp. Lower right. And the in the idea is that as we move lower in the S and P 500, the convexity sort of picks up and the pressure builds right to the downside and there's more hedging flows to the downside and all those kinds of things. And, and what's funny about that is when I look at that right now, I think there's just not that many put positions sitting there that are going to really drive things lower right. Like because this line doesn't go materially down. So when I was talking earlier about not having a material downside level, I'm like, okay, this is where things should bottom. You kind of just look at where we're sitting right now, which is around 6560 to 60, 700 kind of under these strikes and it's, it's kind of quiet, right? There's just not this big bid to puts at the moment. And so you can look at that one of two ways. Number one is we don't have a lot of downside force from the options market past this point. The second one is what if the Nvidia misses and things get worse and people are like, I gotta buy some puts. Well, you have some room, right, to invoke downside from an already weak position. Right. And that's, that's where things could get nasty in the, in the worst scenario is if Nvidia misses and then suddenly you have like the credit default swaps jump of some of these companies credit. When the credit market starts to falter and you're owning Oracle bonds or something like that. Well, the only way you could hedge out those Oracle bonds arguably is to buy Oracle puts, right? Cause the equity would go to zero before the bond. So you buy Oracle puts and that could be this price insensitive buyer of equity volume. And that's where things can get, you know, that's where you start talking about, you know, Vix 60 or whatever, right? Those types of scenarios. So that again, I think to me highlights why this is so important around the Nvidia earnings on this people who.

[B]

Aren'T familiar with negative gamma. The idea is negative gamma means the options market has the tendency to maybe exacerbate moves either direction versus dampening moves. Is that right?

[A]

Yeah, that's exactly right. So negative gamma means that when the market goes down 1%, we talk about delta in the beginning, right? Your, your deltas get more negative. What does that mean? It means dealers have to sell future futures when the market goes down. Then they got to buy futures or buy stock when the market rallies, right? So they're driving volatility. A positive gamma market means you're doing the opposite market comes down. If I have positive gamma on my position or my portfolio, I'm buying stock into a weaker market. So you can imagine if I'm a big buyer, I'm supporting the market, I'm, I'm preventing volatility because I'm this big buyer that's sitting there that's buying into the weakness. So this is a negative gamma market meaning market makers are going to sell when the market goes down. They're going to buy when the market goes up. And that exacerbates volatility. It drives volatility. If you think about that scatter plot of, of one day forward volume right now we talked about earlier, just to make sure that's clear. This one right. This is, you know, negative gamma is in this environment and the volume is bigger because the market makers are selling when the market goes down and they're buying when the market goes up and it drives that volatility. A more positive gamut environment is this one right here where they're buying the dip and selling the rip. Right. They're buying stock when the market gets weak week, they're selling it when it rallies. And that squashes volume.

[B]

And we would expect some of this negative gamut a clear a week from now when we have expiration.

[A]

Yeah, it's about, you know, if you just look at the. Take this as the delta representation. This is the single stock delta. But you know, from this you would say about a third of all positions, right. Or maybe a quarter of all positions would expire. If you're in a Gamma perspective, it's probably, you know, a third to half of Gamma would expire. Gamma's highs for at the money options as we close to expiration. So you know, depending on the weight and exactly. We're looking at, we're, we're moving a decent chunk whereas like in, in December we're probably going to lose like half or maybe even more right. Of, of positions. So the argument is if you have this negative gamma, right Then you would, if there was a huge expiration then that dotted line right. Would shift materially higher, which is the signal that that negative gamma, that volatility driver has dissipated. The trick or the challenge here in forecasting that is if Nvidia earnings are good, market's gonna rally and that negative gamma is going to start to burn off because there's going to be a lot of positions adjusting as the market rallies or sells off. Right. So it's a little hard because of that big event to forecast exactly what this will look like into expiration itself.

[B]

My main job here is just to challenge your presentation skills and make you go 30 slides back and then come 30 slides forward.

[A]

Yeah, we board everybody. We board them all to death and then we should make them sick by flipping.

[B]

Exactly. So what do you get at this next slide with the tail simmering?

[A]

Yeah, tail simmering. This is the sku Index. So it looks at a, I believe it's a one standard deviation spider put versus the at the money. And essentially what it just says is what is the price of tail protection. And yeah, it's up no doubt over the last one to two weeks. But if you look at some of just big volume events from even just this year, you know, mid October for example, it's hardly suggesting that there's this big bid into, you know, out of the money puts basically in spiders, right? So you know again the thing that this is like hey, Nvidia earnings are good, we'll smack that volume down. You know, the SDX probably goes back down to 60 and that's rally fuel, right? But you could easily say oh, Nvidia misses. And then there's plenty of space to this area where you know there's this big bid that has formed, right? Like spider puts value spike, volume spike and then you end up with the SDX up in the 65 to 70 area as an example. So plenty of room to go up. It's not like we're in if we were already here, for example, right? Or here. Then you go, look, nobody's going to buy an incremental put at this point, right? It's too expensive to buy options, which means that people are going to want to start selling those options just because the volume's gotten so expensive. But we're not really at that point like Vol. VOL is a little bit rich, but it's not like a screaming, you know, sell, so to speak on that point. This is the VIX term structure. We just added this recently, the Spot Gamma platform. You can see last week. This is a pretty decent contango meaning VIX and front month VIX futures are priced below. This is the normal situation. And then when you get this vix curve. So first vix future, second, third etc. Versus the vix index, when you get this curve flattening out, right? That's the jumping point for volume, right? So this is flattening out. We're kind of in this stance again where it's sort of like the at the ready stance. And that's going to happen with Nvidia, right? Nvidia is going to trigger one of the other. We're going to collapse back to where we were or what you get is backwardation where the VIX index spikes and then this curve looks like a ramp down, right? So again it's hard to read this and say hey, volume's too expensive or hey, volume's obviously too cheap. It's really right in that middle spot where you know, this is where things break but also there's a decent premium you could sell to help jack the market up. So you know, it's a, it's a weird again, it's a, it's a weird situation.

[B]

Yeah, it's interesting when you see like an event like this. I mean this, this really does like if we look behind the scenes, what's going on, it does seem like this, this Nvidia earnings is like a really major event in terms of where things will go, at least in the short term.

[A]

Yeah. And, and it ties to. I just think so much is happening, you know, obviously as we talked about credit market etc, you know here are, here are vols I show from 12 1. This is when the s p, excuse me from 1031 the s p was near highs out of opex and then from just a week ago 117 versus today. And so you could see that you know the, the one month skew which you're looking at here is pretty equal across the board. Now we've done is we've shifted higher. The concern would be is if you saw this green line on the left side at put prices was much higher which suggested there was a big, big, big bid into into puts, right? So the put skew increase but it's a parallel shift right now which is simply saying that volume is moving so all options are sort of repricing to more volume. It's not that we're suddenly bidding into puts, you know where there's a big concern. If you look at this, what's interesting to give another example of this is that if you see between 1031 and 11 7, into 117 people really bid into calls, right? Because you can see that call skew, that gray line is peaked up here, right way around for these really kind of high calls, right around 7200 and that call skew flattened out, right? So the similar thing here would be if we were expecting Armageddon like today, you would start to see this put tail you would think increase quite a bit, which it hasn't at least yet. Nvidia Ms. I think that that thing goes very bid but we'll see. This is Tesla. You know Tesla was 4:30 4:40 on Monday. Stocks now trading it was 3:85 this morning. It's now at 404 as we open. But the thing that's interesting to me about this is that negative gamma bars below would infer put buyers. So that means a fund buys puts. There's clearly one big put buyer here at 3:50. But all these other strikes are positive gamma strikes. The way that this map generates positive gamma strikes is for hedge funds or retail to sell puts. So what's fascinating again to me about this and this was as of this morning, if the story's over, then where the put buyers, right? Like where are the big put buyers for Tesla? Like 310, 325, 350. Like they're really not there. So if people knew that fundamentally Tesla was screwed, you would buy puts at some strike. Right. And if anything, it looks like the way that people respond to this by selling puts not huge but small, which again speaks to this idea that people are just caught flat footed or it's the fundamental seller. Right. That is driving a lot of the downside here. Cause if anything, it looks sort of like the options market was, was positioned to buy a little bit down here, not necessarily sell. So this to me says, hey, we're not buying puts, we're not freaked out about more downside here. But it's not also not huge positions. Which again just brings me back to the deal like, well, why is the stock dropping 10%? Fundamental selling is one of those will kind of fill that would set in as an explanation there. Yeah.

[B]

As we get to the next slide to our point we've been talking about the whole time, which is everything's up to Nvidia. But also you could argue from a fundamental perspective, forgetting about options because sometimes options respond to stuff that maybe longer term investors don't think that much about. But Nvidia is the center of the entire AI treat if you want from a fundamental perspective to figure out what's going on with AI. Most of these companies are working through Nvidia in one way or another. This tells us when they do report, it tells us a lot about what's going on fundamentally too. Not just what's going on, not just how people are going to react on the options side.

[A]

Yeah. And, and so, you know, look, I, I have no which way that way. I, I don't know which way this goes, but if you're going to give me the outcome, good Nvidia earnings are bad. I think that the move that comes from that in the ensuing days will be big enough that you can just say okay, is it good or bad? And then jump on board. Right. And so I think I, I lay this out, I don't lay this out. So let me lay this out here. We have Nvidia earnings and VIX expiration. Right. And so the argument here Is that if Nvidia earnings are good, then suddenly these credit default swaps, the things that's getting so much attention there, that can cool off a little bit, right? Because then you can say, well, we can grow our way out of the, you know, the debt that we're building or whatever it is. These the stories still intact so that confidence builds. At this point you could say, hey, some of these stocks maybe are now cheaper because of the big sell off recently. Also volume is going to get, get sold off, right? That little bit of a bid to volume is going to get crushed not just in, in in index, but also in single stocks. And then you start to rally. And right now S and P is just to make sure I'm accurate here, 6750. So when you look at the open interest breakdown, there's a massive amount of open interest up at 7,000. It's this big magnet. Plus it's a big round number. People like those big round numbers. So you're going to get the volume crush. But then what is the other thing? You know, as we talked about before Thanksgiving. Thanksgiving is this holiday where really that whole week is very quiet. People tend to not want to own volume over those periods, especially if volume is going to be a little bit rich right into this event. Plus you're going to get rid of VIX expiration, which assuming VIX is still elevated, you're clearing those positions out. So there's this like three or four items here that I can point to that say we're going to clear out the bad positions, the volume inducing positions. We're going to give people an excuse to sell volume. Stocks are now maybe a little bit cheaper here than they were a couple of weeks ago. If the Nvidia story is still, still intact, then there's plenty of room for a pretty serious bounce here. And again, because of the holiday, you just go, all right, Thanksgiving's done. I know what the deal is with Nvidia. Then the next thing I got to worry about is fomc, which is on, you know, mid, mid December or something. And that's going to feel like a lifetime compared to where we are right now and heading into, into Thanksgiving, right? So that is the idea of I think 7,000 could come pretty quickly. And that is the upside target if Nvidia is all right. The second one is obviously if they miss and that sort of cauterizes or drives home this idea that the AI story is in serious trouble. And the problem there then is that I think then you have these issues like These credit default swaps and capex, you know, the spending that has driven the GDP to be positive, all that stuff starts to come under question in a major way. And then people can start going like what's the growth story in the United States? Just period. And the Mag sevens are 35% of, of the S and P and the NASDAQ based on this story. And then you start to go, oh, and then I talked about the incremental put buyers or the put buyers who are price agnostic because they're hedging out, you know, bond exposure, credit exposure. You know, you could get into the situation, you can write the script where it's a pretty ugly scenario. And if it's a pretty ugly scenario, then there's no material shift in positions until December expiration, right? Because that's such a big expiration. But then the other question I have is what data point on the AI side may you get that could change the narrative, right? Avgo, I think reports in mid to early December. But it's not like there's this event where you can point to and be like hey here, this can change the AI story. It's like, you know, there's not this obvious data point that we can all ratchet onto or, or hold on to. Now maybe you can make the argument that FOMC, if the market's down say 5%, FOMC will cut rates then and that could bottom things out. But the point is, is that with the bad Nvidia earnings then there's not a reason suddenly that balls that's just a little bit elevated feels cheap. You know, we talk about that SDX going to 65 or the Vix going materially higher to like 70 or you know, 30 or 40 or whatever. Like those scenarios come quickly into play, right? So that's the problem. And the thing is, is like normally I have a level of this is where this thing exhaust, but I don't have, I don't see that level right now. I just don't, I don't really have it. The level of downside that you'd be like, okay, let's, let's think about maybe buying this dip is where would volume get expensive, right? Where do you start to see, you know, Vix3040, where do you start to see call skew or put skew, excuse me, in the 90th percentile. You know, those kinds of trades, right? And so it's more of a volume based bottom we'd be looking for as opposed to a price, you know, 6562 50. You know that stuff all feels like it could be pretty quick and easy in that. In that type of a scenario.

[B]

So you're about to make a trade.

[A]

Based on a friend's text, but which you do you listen to is it we could buy a house in Tulum, get optioning those options.

[B]

We could lose everything.

[A]

Or let's do a little research, get your head in the trade and make the investment decision that's right for you. Learn [e-mail] TradeSmart this episode is brought to you by Indeed.

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[B]

Yeah, this next chart is cool. I mean, I can't say I know what it is, but I'm a sucker for a good heat map. This is a high quality heat map here.

[A]

Yeah, thank you. I just built this and I just kind of was finishing it up. So take this with a little bit of a grain of salt. And the number one point here was to depict how Vanna as a driver of flows is important. And so what this is is we look at our hedge fund positioning and then I took the opposite side of that. And the reason I took the opposite side of is because I want to show you what the dealer exposure is to this. Right. So the red here is basically saying that deltas are negative. What does that mean? This tells you that if the market rallies, right, and volume comes in, in other words, IV comes down in the S P500, there's negative delta exposure for the dealers. What does that mean? Well, how do you hedge out negative deltas, Jack? You buy stock, right? You have to get that exposure to be zero. So in this situation, what is interesting is to the upside. If volume contracts, this suggests that there's. There is buying that has to take place from market makers, basically up into the 7,000 area. Does that make sense? In other words, this red exposure has to be isolated with. With new stock purchases in here, right? There was a small path of selling in and around into 6,500, where if volume increases, right, then you have to offset positive delta exposure, which would be selling futures. That make sense.

[B]

Yes.

[A]

Now that seems to putter out or sputter out here at 6500. So this chart almost infers that this idea that we kind of moved to 6600 this morning. And then under the 6500 level, maybe that volume doesn't really drive more dealer hedging flows from a volume perspective. And this ties back to the fact that when you look under where we're currently trading, there's no real big put positions. If there was giant put positions. Right. Then the fear would be that if the market goes down. Right, then the dealers have hedging exposure that they have to sell into. Right. In other words, you would think that the map would be a little bit more blue there, that exposure would be more negative. But at the moment it's not. So the point here is that this attempts to put some dollar values around, you know, how much could change. And you're talking about 10 or 20 billion dollars worth of. Of delta flows. Right. That would have to be adjusted when volume shifts up or down one or two volume. So that can be pretty material. Right. Particularly if volume continues to contract over positive Nvidia. Excuse me, positive Nvidia earnings, et cetera. So this is a chart that everyone start to offer on our site. I'll start putting in our founders notes with a little more frequency. But the point here again is to establish the impact of vols a little bit. And I think this is kind of the first time I've seen again some values put to those flows.

[B]

Yeah. So in the last two here we're getting this idea that there's a right tail and there's also a left tail.

[A]

Yeah. And so this is a new calculator. We just launched this with our hidden forces launch that was the end of the month. And this allows you to adjust SKUs. And so what I did here is I put in a call fly. I think this is kind of an interesting trade to play a rally. And you have to adjust for this because the market's moved a lot. But the idea here is I want to try to get a fairly dollar neutral trade. So if you sold a 6700 call and then bought two 6800 calls for December expiration, that gives you a real nice bid. If this market does rally, we move up into the 7,000 area, particularly if this happens over into the end of November. Right. Because volume should start to come down a little bit. So what I like about this structure here is that it isolates you from a volume contraction. But if we do get this really big kind of 3 or 4% rally, then this structure should do pretty well into the face of pretty limited downside, right? So you know, you can see the payout here. The max loss on this trade is about three grand. Max profits about 15 grand. You can adjust this to get a little bit of a better risk reward there too. But I like this kind of. We'll call this a one by two ratio spread to play this upside. This is better in my view than just buying an outright call because number one, the calls are fairly expensive because implied volume is so high. And if implied volume comes down after the Nvidia event, that's a tax on your call, right? So this is an, this is an attempt to sort of remove some of that impact while still getting a lot of nice upside exposure. And this works if you do get that really big move. If it's a kind of a sleepy 1% rally, you know, this structure won't work out quite as well. And then to the downside, the problem here with buying puts is this. The volume is expensive. And so this dash line is what the current market implied volume is, right? And what this basically says is if the market goes down to 64, 50 ish, right? Which is what this put is the 6450 put for December expiration, the market goes down to 6450. The projection is you make three grand. But when we adjust, skew a little bit and just say, well, what happens if the market volume comes in? You can see that that P and L very quickly goes from positive to negative, right? And this is just saying what happens if volume just goes down to where it was two days ago, so not a giant volume crush. So the problem with buying puts here is that if the market just settles down at all, right? Then volume immediately starts to contract and then suddenly anyone who owns puts is feeling the pain. And that speaks to this idea of Vanna as a, as a flow, right? As. As bidding the market back up. So if you have to hedge something, that's great. If you're just buying puts on a speculative view, look at put spreads because you can offset some of that volume risk a little bit. But just be aware of this dynamic, right? The puts are expensive on a relative basis. They could obviously get way more expensive if Nvidia misses. But you are, you have to be prepared to pay a tax right now and the tax is pretty high if the mar. If Nvidia is just kind of flat to no big deal, you know, then volume should come down and those puts are going to weigh on you. Also, with the Thanksgiving period coming up, there's a lot of time decay in these puts. So you need Nvidia to miss and you need a really nasty reaction in order for these puts to pay off, you know, which could happen. It's just you have to be aware that that feels like a little bit of an uphill battle at this moment. Because when does Nvidia ever miss? Jack?

[B]

Yeah, hopefully not now for, for all of our sakes. I guess so. I guess Brent, the viewers got a wide variety of things from us today. They got us talking about politics without trying to talk about politics to limit the hate comments. They got some macro takes. They got a little, little value investing for me. We, we definitely got a lot of options analysis and we also know that it is cool to say bro, bro.

[A]

And yeah, don't look into the six, seven thing. Avoid that one. Yeah, so it was a lot of fun, Jack. And, and I, I think this month's view were quite a bit different. You know, normally as options as the big Dr. It seemed like a little bit different, but hopefully you gave a couple ideas in the options market of ways to express some trades and some views out of this thing. So a little bit of a different take, but we'll be back in December where we'll have the biggest expiration ever so we can resolidify options at the biggest flow in the world.

[B]

Yeah, and I really enjoyed doing this, this with you, bro. I got to try to use it not that well there, but I, I got to start working it in now.

[A]

I like it.

[B]

Cool. So thank you everybody for joining us. We'll see you next time. Thank you for tuning in to this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the Excess returns [e-mail] if you.

[A]

Have any feedback or questions, you can.

[B]

Contact us@excess returnspodmail.com no information on this podcast should be construed as investment advice. Securities discussed in the podcast may be.

[A]

Holdings of the firms of the hosts or their clients.