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

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.

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)

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)

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

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)

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)

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

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

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.

[End of Summary]