This Only Happens in Markets Down 30% | Brent Kochuba on the Rotation Indexes Hide

Summary

Excess Returns Podcast Summary

Episode Title: This Only Happens in Markets Down 30% | Brent Kochuba on the Rotation Indexes Hide
Release Date: February 15, 2026
Guests: Brent Kochuba (SpotGamma)
Hosts: Jack Forehand, Justin Carbonneau, Matt Zeigler
Note: Only Jack and Brent predominantly appear in the transcript sections in focus.

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Episode Overview

In this episode, the Excess Returns team sits down with Brent Kochuba, founder of SpotGamma, for their recurring “OPEX Effect” series. They dive deep into current market structure, the wild disconnect between index-level calm and extreme single-stock volatility, options flows, and how underlying derivatives activity is reshaping equities. They examine what’s happening beneath the surface of an apparently dull market, why certain rotations are reminiscent of the dot-com era, the rise in options trading (especially zero-day-to-expiration products), and how these factors may be sowing the seeds for future market turbulence. The discussion includes actionable insights for portfolio managers and fundamental investors on how options-induced moves can create both risk and opportunity.

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Key Discussion Points & Insights

1. The Wildest Calm Market Ever

• Market Mood: While the S&P 500 and broader indexes look benign on the surface, single-stock volatility is broken wide open.
  • Quote: “I think this has to be maybe the wildest calm market of all time.” – Jack (02:01)
  • Mean reversion between the close-to-close index returns is masking violent intraday and cross-stock moves.
• Data Highlight: Over just eight sessions, 115 S&P 500 stocks have declined 7%+ in a day, with an average drawdown of 34%, while the index is only down 1.5%.
  • “That’s insane...when that’s happened in the past, the market was down on average 34% and we’re down a percent and a half.” – Jack (02:36)

2. Rotation, Value Resurgence & Extreme Dispersion

• Under the Surface: While indexes “go nowhere,” there’s huge dispersion—software stocks are getting crushed, defensive sectors outperform, and value is “ripping.”
  • “If you just hold SPYs in your 401k, you would probably not know that XLK or software stocks are down 30%.” – Brent (22:29)
• Dot-Com Parallels: Market rotation is reminiscent of early 2000s sector churn, but notably the overall market is (so far) not collapsing.

3. Rise in Options Activity & Market Impact

• Options trading volumes have exploded since the pandemic, further compounded by single-stock, near-daily expirations (zero DTEs) for MegaCaps.
• Hedging Flows: Dealer hedging requirements from these positions drive much of the extreme single-stock price action and sometimes feed back into indexes.
  • “The transmission mechanism from the options market to the stock market is hedging…these shares can add up a lot.” – Brent (13:31)

4. Volatility “Hidden” by Traditional Metrics

• Standard realized volatility (close-to-close) downplays the present risk environment and ignores major intraday swings.
  • “There’s so much mean reversion now that the volume doesn’t seem that high. But if you look at the swings intraday, we’ll have 1–2% swings intraday and market only closes down or up 20 bips…” – Brent (21:05, 01:00)

5. Options Expiration (OPEX) Dynamics

• OPEX still marks regime shifts in volatility and market behavior, with significant rallies or sell-offs often flipping around major expiry dates.
  • “Two out of three times...the S&P performance flips into and out of expiration…If we rally into OPEX, 2/3 of the time we sell off and vice versa.” – Brent (15:16)
• Monthly OPEX is losing some punch as shorter-term expirations proliferate but remains a major marker for tactical traders.

6. Put Buying and Downside Hedging

• Skew in S&P options is beginning to lift, suggesting that some are quietly starting to hedge, but not at panic levels. This leaves the door open for more negative convexity if markets fall.
  • “People are starting to get into puts…this is the beginning of people starting to hedge.” – Brent (34:32)

7. Valuable Market Signals from Option Metrics

• Core 1M Index: When single-stock correlation plunges, it signals “exuberant” bullishness—typically a precursor to sharp reversals or “spasms.”
  • “People are too bullish essentially in single stocks…when you get below or down around this 8 level on the index, it’s this sign that the bullishness has hit this exuberant level.” – Brent (27:55)
• Volume Blow-Off as Signal: Extremes in volume and implied volatility, such as in silver or software puts, often mark unsustainable moves and soon-to-be-reversed trends.

8. Opportunities and Risks from Flow-Driven Moves

• Recent software/tech wipeouts have driven implied vol sky-high and put prices to extremes. This may create an opportunity for savvy investors to:
  • A. Sift for fundamentally strong “babies thrown out with bathwater”
  • B. Sell rich puts or spreads if one understands volatility contraction patterns post-earnings
  • “Some of these companies just…are down 30% this month…whereas a 50% drop warranted here? I don’t know.” – Brent (59:33)
  • “If you look at CRM…puts are as expensive as they’ve been in the last year…” – Brent (59:33)

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Notable Quotes & Memorable Moments

Market Character

• “I think this has to be maybe the wildest calm market of all time.” – Jack (02:01)
• “Violently going nowhere is definitely a candidate for the video title.” – Jack (20:41)
• “Under the surface there’s a lot going on. Value people are just probably happy that they’re not down again this year.” – Brent (22:29)

Options Insights

• “The transmission mechanism from the options market to the stock market is hedging...and the hedges are dynamic, meaning we’re hedged right now at this time, at this price. If price moves, you have to adjust your hedge.” – Brent (13:31)
• “The effect of OPEX regime change...if volatility is low, it tends to contract even more into expiration and then expands after.” – Brent (15:20)

Market Structure & Rotation

• “The only way that it gets back to being sort of regulated is to the downside move, where everything sort of just resets and sinks back up. These things usually don’t sort of reset to the upside.” – Brent (57:00)

Advice & Takeaways

• “There are times where it’s worth risking a lot of your capital...the waters are pretty clear...Right now it doesn’t seem like one of those moments.” – Brent (50:05)

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Timestamps for Important Segments

| Timestamp | Topic | |--------------|----------------------------------------------------------------| | 01:00-02:36 | Extreme single-stock moves vs. calm indexes | | 02:36-04:12 | Market rotation, sector performance, parallels to dot-com | | 11:39-13:31 | Growth in options trading & implications for hedging | | 14:42-15:20 | Options expiration (OPEX), monthly vs. new daily cycles | | 18:22-22:18 | Measuring volatility—intraday swings vs. close-to-close | | 27:55-31:29 | Core 1M correlation index as risk signal | | 34:32-36:25 | S&P skew lifts, early hedging flows, what this means | | 43:07-44:26 | Gold/silver wipeout as function of options-driven “blow off” | | 48:22-50:05 | 2000 rotation analogy, risk of a market “crash point” | | 55:15-57:00 | How options flows exaggerate sector moves, opportunities | | 59:19-63:33 | Software sector slaughter—volatility, put selling ideas | | 66:43-68:12 | Identifying technical “floors” & downside targets in S&P | | 68:12-69:13 | Zero DTE options in single stocks — what’s changed |

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Actionable Insights

• For Long-Term and Fundamental Investors:

  • Monitor option “blow-off tops” and “high IV” moves; they often mark exhaustions where sharp reversals can emerge—ripe areas for bottom-fishing if fundamentals are sound.
  • Use sector/ETF-level volatility metrics for tactical allocation—opportunities arise when option flows exaggerate to both upside and downside.
  • Don’t be fooled by index calm—look for cross-currents in options data and single-stock correlations.

• For Options Traders:

  • Recent software carnage offers unusually high put premiums. Historical tendency is for volatility to contract post-earnings—even after bad numbers—creating premium selling opportunities.
  • When S&P or sector ETF skew starts to lift but volume is not at panic levels, downside convexity increases: don’t short puts aggressively at these levels, but prepare for quick convexity spikes if indexes break down.

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Conclusion

This episode peels back the composure of broad equity indexes to reveal a highly fragmented, flow-driven market. Brent and Jack illuminate how modern market structure, led by an explosion in options trading, can create both subtle risk and rare opportunity for the aware investor. While the index looks placid, the undercurrents—sector rotation, option hedging, and massive cross-stock dispersions—warrant vigilance and adaptive strategies in the weeks and months ahead.

[End of Summary]

Transcript

[A]

This is your fix.

[B]

I am your host, Stassi Schroeder. Welcome to Tell Me Lies, the official podcast. What's the most unhinged thing of season three?

[A]

Steven because he's so evil, I do think he is misunderstood.

[B]

You see everyone face consequences.

[C]

It's intoxicating.

[B]

The writers just know how to trick. Yeah, there's always a twist in this show. Tell Me Lies the official podcast January 6th and stream the new season of Tell Me Lies January 13th on Hulu and Hulu on Disney.

[D]

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 Excess Returns feed. If you want to keep receiving new episodes, you can subscribe to the OPEX Effect on all major podcast platforms or our YouTube channel using the links in this episode. Description thank you for listening. We hope you enjoy the show or.

[A]

Subscribe they're showing here is that stocks are moving at just insane amounts, right? The average stock there is moving 10%. That's just the average. Some of those are moving obviously way more and the index is not doing anything. If we were down a percent like we are now and, and that skew didn't lift at all, what does that tell you? No one's hedging downside. They don't care, right? And that's a sign in and of itself, if you were having this panic fear washout, you would think that IV would be way up here. At which point then Jack, I'm maybe like maybe, maybe it's time to buy that dip. But we're not seeing that washout. If you're like what did, what is 10 day realized volume? You'd measure the S and P close to close to to as that input. Well, on a close to close basis, there's so much mean reversion now that the volume doesn't seem that high. But if you look at the swings intraday, you know, we'll have 1 to 2% swings intraday and then the market only closes down or up 20 bips, right? And you go, you know that volume is hidden by those metrics. The reaction is more extreme now because of the positioning in the flows. And so people think it's more important. And that's kind of one of the things I think is happening in software stocks.

[E]

So, Brent, I think this has to be maybe the wildest calm market of all time. Is that a good way to describe it?

[A]

I think that is actually a fact, Jack. That's a fact, Jack. I'm not actually. I didn't mean to do that. But you probably heard that your whole life.

[E]

I have, yeah. It's all right.

[A]

I didn't mean. I didn't. I really said that's a fact. And there's a lot happening. And if you are invested in the wrong stuff, you are hurting or you're super excited. If you're an indexer, like 99.9% of investors out there, then you're like, you know, just another day. So it's all good.

[E]

Yeah, it's like the crazy. And I'm just gonna put this chart up. Cause I saw it on Twitter right before we got on and I thought it was really cool. Like in terms of the rotation going on, this is, this is a tweet from Michael Botnik. And he said, wild market. We haven't seen anything like this since the dot com bubble burst. Over the last eight. Last eight sessions, 115 stocks in the S&P 500 have declined 7% or more in a single day. The average drawdown when that happens is 34%. Right now we're down 1.5%. So like when that's happened in the past, the market was down on average 34% and we're down a percent and a half. Yeah, that's insane.

[A]

McElligot. I have a chart in our deck Too that, that McElligot has a backtest of this situation, which is also pretty nasty as well. And I guess when I think about that, I'm like, well, you got the Mag 7 concentration right. Which, which if you look at the software stocks, for example, and you, and you sum them all, they're very small part of the S&P 500, if they're even part of the S&P 500. So it's like not that software rules everything, but Mag 7s aren't even doing that well right now, you know, so it's like what is breaking out is defense stocks and energy. And that's kind of about it.

[E]

Value, Brent. Value.

[A]

Is value still doing well?

[E]

Oh, value's ripping this year. Yeah. And so, I mean, the big differentiator, I think, has been small. Like small over large to Some degree. But even within small, there's like, there's a bunch of crazy stuff going down and stuff going up. But like if you look at it like the small cap indexes are definitely up more than the S and P. But yeah, the value stuff's been pretty good. It's a really, really weird market. I mean I can't explain it and we'll talk about this more when we get into it because I always jump ahead of what you're going to talk about, but it is just interesting to think about what's going on beneath the surface versus what's going on at the index level.

[A]

Yeah. And if you, if you saw the headlines, Pam Bondi said you shouldn't care about anything because The Dow's over 5,50,000. Right. So yeah.

[E]

And then she, she said it in the wrong way. Right. Or something too, wasn't it? I forget what it was. She quoted the wrong. I don't know what she. Some. It was some way that like showed a lack of care about Steam files.

[A]

Jack, the dow is over 50,000 of.

[E]

What'S going on in markets. Yeah, but, but nonetheless we try, we try not to get political.

[A]

We should end it here.

[E]

Yeah, yeah. I mean for being until 240 before we got off the rails is pretty impressive for us at this point listening anyway.

[A]

So we can say what.

[E]

Yeah, that's right. People are already gone. But before we start, I do, I do want to plug two things. I never plug things, but I do want to plug two things. One is you were with us on our first episode of Last Call, which is our new attempt at redoing a market rap show. And so just for anybody who hasn't seen it, you may want to take a look at it. We did at the end of last month and you pointed out some really interesting things that end up being somewhat prophetic here in terms of Core 1M and some other stuff that was going on. So if you get a chance and you want to see Brent and I telling the same terrible jokes we always tell and my co host and Matt and I also telling some terrible jokes, you can go over and check out Last Call. And the other thing is just I want to point out that this video will come from both of us, but like you're doing some really good stuff over on Spot Gamma on the YouTube on your YouTube channel too. So if you're watching this and you're subscribed to access returns, if you hit the subscribe button anyway on the video, you'll pop up. It'll pop up both channels and, you know. Please subscribe to Brent on Spot Gamma. He's doing some great stuff. And if you've ever watched us and been like, wouldn't this be much better if Jack wasn't here and Brent was just. Brent was giving this himself. You can find that On Spot gift. Just the analysis without the terrible jokes.

[A]

Well, thank you, Jack. That's. That's very flattering. And congrats on the new show. It's a lot of fun and it's a cool idea. And thank you. I'm trying to get up to your level now. You leapfrog my little YouTube channel a while back, as you should, and you have some incredible guests. So I'm happy to be a part of the OPEX effect. And. Yes. Yeah.

[E]

And we'll definitely be. We'll see if you'll come back. We're gonna ask you again to come to the next Last Call, and we'll see if. See if you're willing to join us again or if it was too terrible.

[A]

Yes, Always back. One of these days, we'll do it at the bar and then. And then we can really say some inappropriate things, and that'll probably last new video ever.

[E]

So I like that if the bar will let us set up our little tripod or whatever, get it done. But I guess we should get into it. We should probably get into our options analysis here. But I do have to reference the lobster first, though, because people are probably seeing this thing on the screen and being like, what's going on with this?

[A]

So that is a banger of an image.

[E]

It's some great AI imagery by you, Brent. Really, really good. It's actually real.

[A]

It's not AI.

[E]

It is exactly. It's phenomenal. But, yeah. And I think that's going to allude to maybe some of the things we'll be talking about in this podcast, I guess.

[A]

Yes. This is a nod to openclaw, which is causing a saspocalypse, they've called it. Everyone think has to end in sas. SAS apocalypse. I'm sure most people know what openclaw is now. It's basically an AI agent that you can put on your. Your computer, and it does all sorts of stuff like emails and blah, blah, blah. You know, I've been playing with it as. As a lot of people, and it's like, it's cool, but it's not, like, there yet. But I gave me the opportunity to put a lobster attacking a stockbroker on screen, so. So there it is. But on this topic, you Know, amongst quad code probably being a better reason for why SAS stocks are down. IGV, which is the ETF we're going to talk about here, is down 30% this month, which is pretty nasty. And then you have stocks like Unity and Applovin, which is a hilarious name. They report earnings and drop even Farther because their CEOs just don't really have a good response to how they defend their moat. Right. So the lobster represents sasspocalypse and Open Cloth. So that's the rub there. And there's some lobsters strewn throughout our presentation, just to keep it light over here.

[E]

Oh, good, good. And I know you've got like a bunch of stuff on the SAS stuff as we get later to the presentation. Just one more thing I want to ask you about before we get into it is this gold and silver thing. So I think like last time, because I don't think you actually have that in the presentation, so I tried not to ask about things, you're the president that are in the presentation, so I don't take away from it. But like, I think the day we were recording last time was the day that gold and silver on that Friday, like, went insanely down. And I'm just wondering, like, was there anything like you saw behind the scenes while that was going on? Like, was that. Was that. Were options playing a big part in that whole thing? Like, I'm just curious what you saw behind the scenes when that whole thing was going on.

[A]

Yeah, and shame on me. I should have had a couple slides on silver. What I could tell you about silver is one day, I think it was two weeks ago now, silver traded 6 million contracts. I think it was. It almost traded more than spiders on the day, which is just bananas. I mean, you know, spiders. The S&P 500 is a trillion dollar market, you know, biggest probably asset in the, in the world, I would guess. I guess US Treasuries or whatever, but. But still, like, it dwarfs silver and, and it. And, and, and so that little etf, slv, ETF traded almost more on that day. I think silver hit 115 on the day and that was the top. You saw the big boys come in and just slam that thing and, and those names, silver and gold have had a hard time, I think, sort of getting traction above that now from my chair in the option seat, aside from macro landscape, the volume in that space is extraordinary. That goes for the commodity and the etf, you know. And so when I think that volume comes in, you get a different type of trader coming in there there are people who are not, you know, buying from manufacturing or investing for fundamental reasons. There's a volume trade in there and I think that changes the way that the asset trades and, and sort of forms that top a little bit. And so for my chair that's that, you know, that IV rank of 100 which you talked about a couple times. And then you see this volume that is the biggest volume you know, you're ever probably going to see in an asset like slv. That stuff corresponds oftentimes with tops because it's telling you that someone big is coming in. There's a, there's a regime shift there and, and so, you know, that's certainly what we've seen for now. Now does that mean that SLB's put its all time high in. I mean, I don't know about all time high, but it certainly seems in the short term that, that, that it's a little bit stuck. But in this weird monetary political environment we have, who knows, right?

[E]

Yeah, it was interesting too like that 4 quadrant chart you always put up like the top right, I've learned is kind of the place where it's like this is probably not going to continue. And Silver was way up at the top right. I think last time we talked and.

[A]

We have some of those slides here later on and you know what's up there right now is the software stocks. So, so that'd be pretty interesting to see. And maybe then there's a presentation we'll just bring up, I'll bring up a trading view chart or whatever and we could see where that Silver top and that that volume was because I know we, we talked about it a couple times and, and see how that corresponds. So extra credit. We'll do that at the end. I also have a couple SaaS ideas so if you're the type that's like Brent, give me something that's mildly interesting. You know, hang on. We have something, we have a projection ahead.

[E]

Nice. And that's very important YouTube skill by the way, Brent, like allude to stuff in the future so that people stay with us.

[A]

Oh.

[E]

You think I would have learned that after doing this for like six years or whatever. But I've.

[A]

Stay tuned.

[E]

But, but as we get into this. So we have to talk about why we're here, which is that as a long term investor I see these things happening all the time that I can't explain in the market and you have a bunch of information behind the scenes that often does explain those things and options are causing a lot of that and to this chart you just put up here. The use of options by all kinds of different investors has grown dramatically since. Since COVID That's right.

[A]

Options volumes continue to explode. I need to update this chart for the 2025 year. But they just keep making more and more new highs and they keep making new products. So what was the big event in the options space here since we last talked? Jack was at the end of Jan. They rolled out Monday, Wednesday, Friday, expirations in the names, the mag sevens that you can see on your screen there. And I have a little extra credit slide at the end that shows you the volumes. The hot take there is. It's hard to say that there's a risk necessarily stock impact, but those names are now trading a lot more options volume. And so if you think about the impact of zero DTE in the S&P, now you have zero DTE essentially in these big single stocks. And so that's certainly more volume, certainly more activity. And I suspect that it unleashes some new trading styles that, that may augment or, or change the way that markets sort of function, certainly on a short term basis. So the volumes we think just going to continue to grow and the impact should continue to increase.

[E]

And I assume it's profitable to keep making these new expirations. So we're probably going to see more and more of that as we move forward, right?

[A]

Yeah. The exchanges love the fees. The activity in those products is really high. So market makers are happy with that. That gives more ways to hedge and express trading views. So who's the complaint about that? And from the exchange side, they can sell us even more market data, which is as someone who pays a massive market data bill every month.

[E]

You love that, right?

[A]

They love that. I mean the market data bills.

[E]

Yeah, I don't got that. I buy market data, but it's more like daily fundamental data. So that's a little bit, I'm sure, less expensive.

[A]

Right.

[E]

The type of stuff you're buying, you.

[A]

Said low demand value stock data that who cares? Go to go to the yard sale and get picked that up.

[E]

Right. But as people are more are using options more and more behind the scenes, we have these option dealers who don't want positions necessarily. And these things people are taking positions in, they have to hedge their positions. It leads to flows behind the scenes. And that's a lot of what we talk about in this podcast.

[A]

Right. So the transmission mechanism from the options market to the stock market is hedging. And so when we all get together we buy an individual stock or options on a certain stock, like Silver Software, whatever it is, market makers have to hedge that. And then they do that with stock shares of stock, right? So in this basic example, 100,000 calls trade at a 50 Delta. Delta comes out of a black Scholes model, essentially tells us how many shares of stock do we have to buy to hedge. In that case it's 5 million shares. So you can see those shares can add up a lot. And then that, that hedge is dynamic, meaning we're hedged right now at this time, at this price. If price moves, you have to adjust your, your hedge. So buy and sell more shares. If time passes, right, which, which it does, time moves, as you know, Jack, then you have to adjust your hedge. And then of course, as volatility or options values change, these are independent variables that have to be sort of be hedged, you know, uniquely, right? So there's this blend of factors that require hedging adjustments all the time. And that's what we're monitoring, right? We know what the position is or have a great idea what the market maker position is. And then it's our estimate of how hedging flows can kick off using some of these metrics. And what the impact of that is going to be in the market is, is, is our ultimate goal.

[E]

And the reason you and I are talking today is because I didn't screw up the timing this time. So we actually are recording the Friday before the next options expiration, and this will come out on Saturday. So as we lead into this, options expirations, positions build up and then things change on the expiration. Right. There's room for the market to move after that.

[A]

Yeah, the third Friday of the month, even though we're getting these daily expirations, third Friday of the month is still the bigger expiration that's out there. And so we still track that sort of cycle, that 30 day cycle, even though there's kind of a shorter cycle that emerges. And as we get more Monday, Wednesday, Friday, single stock expirations, you know, maybe that's, maybe we have to do daily OPEX videos, Jack. But the point is, I am curious.

[E]

Though, will that mean, will these become less important over time, you think, as all these other expirations come up, like, do you see like five years from now? I think these will be a lot less.

[A]

Okay, yeah, I, I think that's what it is. And, and stuff becomes more systematic and algorithmic. The, the tenor of trade seems to be shrinking a little bit. And so, you know, the big Boys will still put big trades out on the quarterly basis because transaction costs for, for pure hedging, right. If you really want to hedge this quarter and buy an S P puts, you got to go out, you know, a month or two or one of those bigger liquid expirations, for example. So you know, I, I still think those will be the dominant expirations, but it definitely is going to chip away at it and, and pull that, that positioning forward in, in kind of interesting way. So the point is here though that those expiration, at expiration, the hedges have to roll off because positions expire, right. And so, and then, and then kind of the new cycle starts. There's data that backs the impact of this. As you can see here, two out of three times, about 66% of the time the S and P performance flips into and out of expiration. What does that mean? If we rally into OPEX, 2/3 of the time we sell off and vice versa. In this case, those stats are changed a little bit based on whether VIX expiration happens before or after. So you can see it's about a 10% difference there between the two. So 68 versus 58. And interestingly, Vix expiration is before Feb OPEX here. So VIX expiration is Wednesday. And the idea there is that VIX expiration may be the start of this expiration window which starts to create the regime change, the OPEX regime change. Now what is even maybe more interesting, if you look at this from a volatility perspective, RV stands for realized volatility in this chart. What are you taking away from this? If volatility is low, it tends to contract even more into expiration and then it expands after vice versa. If volatility is whipping around into opex, then it tends to calm after expiration. So again, there's that mean reversion quality in volatility space as well as price direction.

[B]

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[E]

And then on this next chart we're looking at, you have the ability, basically based on gamma, to give an idea of what volatility will be on a one day basis going forward.

[A]

Right.

[E]

And right now we're kind of in that we're moving up at least into a little bit of more of that higher volatility rate.

[A]

Yeah. So the X axis here is our gamma index. It's how much hedging flow from a gamma perspective do dealers have in the S and P? And we run this at night and then in the morning we say, okay, what does that, how does that correlate or, or measure with forward one day volatility? So how much does the market move the next day? And that's what this Y axis is. And what you see is that the less gamma we have, or if we have negative gamma in The S&P 500, that tends to correspond with forward volatility. So the idea is if you can see that dealers are positioned to constrict or keep volatility contracted or stifled, we can measure that via gamma, where sometimes they'll suppress volatility, sometimes they're positioned to expand it. Right. And so this gamma data again, statistically is shown to have significance.

[E]

And once the expiration clears. Right. The more volatile we are, if we're not volatile, there's a chance for it to open up and be more volatile after the expiration. If we're very volatile going in, then there's a chance it goes the other way, right?

[A]

That's right. And so this chart here is updated just for the last few months to kind of drive home this point. Now, not every high and low has to be an options expiration. But you can see on this chart here, Jack, that we had this FOMC sell off into December. What was the low of December? It was VIX expiration day. Then we bounced right into Christmas Eve. And then what was the market high? Jan Opex on the day, Then there's this big gap down. So you know, if you just measure what happened over the last two and November was a major low. November options expiration. So you know, the, the correlation causation thing, you could say, well, that doesn't make sense. But every single OPEX seems to kind of have not everyone but man, they so often, right? And so as we watch here, as we move towards VIX expiration on Wednesday and Feb, opex, it's an interesting one because there's not a clear market direction, right? And VOL is kind of like in the middle and price action is kind of in the middle and, and I have some things to say about that. But this isn't one of those clear like markets trending into OPEX so it can sell off after, right? It's, it's very chippy out there. So this is a little bit tougher to call maybe, I would say.

[E]

But by the way, Violently Going Nowhere is definitely a candidate for the video title. That, that's, that's very strong on your part. So I think if you're watching and you clicked on it, you might, it might be. Brent, you have to thank for clicking on this video.

[A]

This is an art, everybody. And so if you like my titles, that's great. But to the point of violently going nowhere, we did a measurement two weeks ago of the amount of intraday volatility versus kind of close to close volatility. Because what's fascinating is a lot of volatility metrics like you know, are based on close to close volatility, right? So if you're like what did, what is 10 day realized volume? You'd measure the S and P close to close to to as that input. Well, on a close to close basis there's so much mean reversion now that the volume doesn't seem that high. But if you look at the swings intraday, you know, we'll have 1 to 2% swings intraday and then the market only closes down or up 20 bips, right? And you go, you know, that volume is hidden by those metrics. And so when you compare those two close to close volume versus intraday volume, this is one of the bigger differences, right, chasms that we've had or spreads that we've had ever, right. You have to, you know, there's, there's only a handful of data points where this match measures. And what's interesting is we took that measurement, I think it was last week and the forward returns from these types of incidences were actually positive, which was like really head scratching positive on a short term basis. Right. And so the fact that the market is sort of holding up, you know, it's down a little bit today, but sort of holding up in the space in the face of this volatility is, is interesting but statistically that seems to be what, what happens now after opex. I suspect that the tone is going to change but the violently going nowhere just seems to be, seemed to be the right way to frame this thing.

[E]

What's interesting too in terms of the close to close volatility hiding things. Not only is it hiding the intraday volatility, but it's hiding like the volatility beneath the surface that's even worse than the intraday volatility of all these individual stocks going all over the place.

[A]

That's exactly right. If you just hold spiders in your 401k, you would probably not know that XLK or software stocks are down 30% and housing stocks are up 15. There's all this stuff whipping all over the place. I don't know what to say about the value stocks, if anybody owns any of those. What's happening there. But under the surface there's a lot going on. You know, value people are just probably happy that they're not down again this year.

[E]

So as we get into the expiration, we've got a very, very strong use of lobster clause here by you. So I'll let you explain it.

[A]

Yeah, the open claw. So in this case what we have here is two measurements of the same data. This is how big is the options expiration to judge impact. Now if you go onto one of the major financial outlets, they'll talk about how big OPEX is in terms of notional value and they will say something like trillion dollars. I don't like that measurement because what they do is they just take the amount of open interest and they multiply it by shares of stock because they assume that one open interest is 100 shares of stock. Kind of like a 13F jack, that's misleading. So I included that in the upper left because a lot of times what happens is people go Brent, your measurement says something much smaller. In this case we're a little bit closer to 600 billion. But Goldman says 3 trillion. So Brent, you must be wrong. And it's like we're measuring slightly different things. So I like to look at Delta because Delta is the stock equivalent. And the two things that I take away from this are, number one, you know, S P dominates like it always does, but we're very put heavy on the index side outside of the S P. So what does that mean? Nasdaq, Russell, that complex is quite put heavy at the moment relative to calls. And S and P interestingly is pretty neutral. Like 50, 50 normally is a little more weighted to calls. And so what you take from this is tech is getting beat up, which it is. But some of this other stuff that diversified sectors, they're doing okay, I guess the energies and the housing and I think, you know, consumer discretionary defense is doing quite well. Right. So some of that other stuff is maybe holding up a little bit better. But the SPX index itself, again at 5050 is like a very equal weighting and to the point of violently going nowhere. It's like equal weighting, like kind of in the middle. Anything could kind of happen. And that's what the options market seems to be putting in. In terms of the S and P. While as. Whereas tech is really quite weak as the. Is the standout. And then what is the point of the lobster clause here? The. The key question is, is this a big expiration or not? Well, the full on monster claw would be a quarterly expiration or like a December expiration. This one's quite small. So on my lobster Crawler rating, this is a one out of three, Jack. In terms of.

[E]

We got to keep this going forward, Brent.

[A]

Right.

[E]

This has, this has to be a permanent fixture at the OPEX effect.

[A]

I think. So, yeah.

[E]

It's a very easy way to like, see how, how big is the expiration.

[A]

I know youtubers are supposed to ask for comments, so if you want to keep the lobster craw rating, then we will, we'll keep it in play. Let us know in the comments. Tell.

[E]

Tell us in the comments if, if.

[A]

You want to do it.

[E]

Because also the comments. Helps. Yeah, yeah, helps helps my algorithm to get more views. Just one, just one question on that. In terms of the. So people are buying a lot of puts on the Russell.

[A]

Right.

[E]

Is what you're saying.

[A]

And, and the ndx. So like what goes into the index? Non. S and P is the Q's. Iwms, NDX index options and Russell index options. Right. So that's what that sector is. And, and so you know what always amazes me is just how small that is relative. The SPX Spy. Right. The S and P, it's like the.

[E]

Yeah, it's nothing.

[A]

Sum of all options. You can add up all extra options and they're basically equal to just what's in the split S&P 500 index stuff. So, you know, yes, we're, we're bearish on the Nasdaq Russell side of things, but that's only 7% of what's set to expire, whereas S and P is 50%, as you can see with the percentages Here.

[E]

Yeah, which is interesting to me because the Russell's actually been doing very well relative to the S and P this year. But also I would think if I've got a portfolio of stocks of all these crazy stocks that are moving all over the place, maybe I'm like hedging to some degree at the index level by buying puts in the Russell.

[A]

I think that's totally viable. And you see that I think in gold and some of these other assets that have been doing pretty well. And even the Dow for example, that sort of hedging flow. I also think that, I mean the tech sector is just looking quite weak as well. So I suspect a lot of that put volume is just downside bets on the NDX itself based on the way the things we're seeing, just the price action that we're seeing. So you know, I, I would guess if I, I would estimate that that's more NDX heavy or, or NDX related, NASDAQ related than Russell Russell related.

[E]

So as we head to the next slide, we can see more about the, the size of this expiration relative to some other ones.

[A]

Yeah, and this one's just a single stock deltas. This is calls versus puts. And I like to put this out there just to see what's going forward, what the big expirations are. And so to the point of this being relatively small versus March. March is, you know, double at least. Right. The size at the moment. So that just tells you it's a much bigger quarterly expiration. That could be a very significant turning point as we go out of opex. So if we leave February OPEX and we start to crash, for example, you know, you want to circle that March expiration date because not only do you have a huge opex, that's when the FOMC kind of comes up. And that oftentimes is a really major turning point. And so something to watch for those of you who are not kind of day to day traders, but more trading on a month to month type basis.

[E]

And so we always like to look back at what we said in the previous episode to see if we made any sense at all. And this, this first one actually you made a ton of sense which is this, this Core one M thing I referenced earlier, you know, that, that was flashing some warning signs.

[A]

Yeah. And we like this core 1M index, its correlation index from the CBO because it, it's the summation of a lot of things happening under the surface in, in, you know, in the option space. And so kind of like if, if you were reading the weather and someone was telling you about barometric pressure and this and that and the other thing, and then you just go, what's the weather? And just go it's sunny. And go, okay, great. And that's kind of what this is right under the surface. What this is telling you is people are too bullish essentially in single stocks. And when you get below or down around this 8 level on the index, it's this sign that the bullishness is hit this like exuberant level, right? And that causes spasms. And so it's a very consistent measure. Over the last two years when you get this index or this correlation metric, this low stuff starts to spasm and lo and behold, that's kind of what, what happens here. And ultimately what it is saying is the volatility complex needs to reset. And I think this is significant because a lot of times what happens in this market now stuff moves and then people go and assign narrative to that move. They go, oh, okay, why does this fall? Well, open cloud launch or whatever or, or looking back, it's, this is the reason. Whereas if you know that this correlation metric and stuff is saying, look, the vols are all offset in the options markets telling you that that stuff is, is out of whack, then when the market move happens and we get the spasm, you go, okay, well the options market told us it's about to spasm. So you know, you shouldn't be so surprised and you don't have to search for narrative in the same way. And again, not every sell off is driven by the options market. I think a lot of them are increasingly. But when you see this stuff happen with such consistency, you know, it sort of renders it, you're a little bit foolish I think for not paying attention, to be quite honest.

[E]

Is this, is this more of a short term indicator? Like if I, you know, see this and I'm like, oh, the market might spasm here, is it more likely to say this? This might be more of a short term thing versus a long term thing.

[A]

I think days and weeks, you know, this is not going to be a signal that the market is going to make an all time low now into December for example, but the next one week to one month, you know, you worry about it. Now this is the chart from December for, excuse me, from January. So this is our older chart looking back at what happened. To be clear, I have an updated chart on this. But you know, in the days and weeks ensuing it, it's suggests spasm. So what do you do with that? Well, you don't buy a one week put. You buy like a one to two month put. Because normally the other side of this thing, Jack too is that volume is generally very low. VIX is very low or S and P volume is very low. What does that mean? Puts are cheap, index puts very cheap. When this is, when this is screaming risk off. So that's a nice alignment, right? You're buying cheap puts. Okay, well like what's the worst that happened? You lose a little bit of money on decay. Fine. It's different from like Vix is at 80 and I'm out there like buy puts and Vix is at 80 and then you get destroyed. Right, because your puts lose all your value. You bought very expensive puts. Right. So this is a metric that, that continues, I think, to warrant watching. The other thing on that point about people being exuberantly bullish, this is our compass. What does this mean? If you're on the right side of this chart, that's extreme bullishness. So you know, you can think about Amazon, Google, everyone into earnings was like all bullied up and these stocks were all doing pretty well, right? Near all time highs. And it was very linked in this way, right. So everybody was bullish on all these stocks. Very low volume. The S and P, that's what the Y axis is, is high options prices versus low. So if you have low options prices and everyone's kind of in this, oops, sorry about that. Lower white quadrant, very bullish. Right. And high correlation in that. Single stocks are all bid across the board. So again that syncs with low correlation on this index saying, all right, everyone's super bowled up. It's a crowded trade.

[E]

And this also highlights what I was talking about earlier. Like silver was on its own, basically. It was off, away from everything else.

[A]

This is incredibly high. Implied volume in Silver IV rank of 100 means that the volume is more expensive. Options prices are more expensive now than they have been in the last year. This obviously is not only in the last year, but you know, you'd have to look back decades maybe, right, to see a higher volume. And this is happening in the context of the stock going up or the asset going up. So stock up volume up to an extreme. That is screaming overbought right now. That's, that can be tricky to trade but you know, kind of the end is oftentimes near when we hit this level. Right. And so that's going to play in here in a minute when we look at software stocks to the downside in the, in the ndx, realizable is quite low, as you can see here. There's a decent spread between the two. And then on the point of the. On the point of asset ball, I should have included an update here because Goldville has gone bananas now. Right, that's off this chart. But volume rate, volume was very, very quiet. It's starting to lift a little bit. The VIX was low index, well, you know, low across the board in terms of volume across all assets. And all of this volume is starting to wake up. Right. You know, rates were not going to get a cut. It doesn't look like, you know, there's that macro stuff's going back and forth. Oil is up and energy's up a little bit. And, you know, is there an Iran thing still? I don't think so, but who knows, you know, so there's always that kind of risk.

[D]

But.

[A]

But assets now seem to be trembling in a way. So, like, you know, from last month to this month, there's definitely a change in the volatility landscape across assets, which I think is an important thing. Because, look, if credit volume goes crazy, guess what? Equity volume is going nuts too. Right? And that's an important thing to note. And on this point, too, it's kind of interesting. Odds of rate cut at the, at the Jan meeting. Went through the Jan meeting, you know, no cut. Odds of a rate cut for March went to 20%. Then we got that jobs data and. And then it went down to 10%. And I think that is another part of why stuff seems so kind of elevated. Last but not least, this is our term structure and what we were saying was S and P, implied volume is likely to remain elevated because of this signal. Right? This is what we call forward implied volume. And it just says if you, if you look ahead, what's the projection for implied volume for the S and P? And it was pinning higher. Oftentimes it's lower. So this told us that there's not a tailwind for volume to come down, right? There's like this headwind or this stickiness in implied volume, which did, you know, turn out to be true as well. So. So I think that made sense. And then, you know, last but not least is this line in the sand, which turns out to be the same line in the sand with 6900, and that's this area, and it continues to be this area where there's a lot of risk below that level and some relative calm above. Now, we've not had a stickiness above that Level, but that still is this line of demarcation between where things can really fall apart versus relative stability. So it's interesting that that level is still in play here as we move or we're a full month ahead from what we were talking about before.

[E]

So as we look forward to February here in your first slide. So we're starting to see a bid in puts.

[A]

Yeah. And. And to. So if you look at the Jan presentation, I don't know if you remember that, Jack, but there's this, this image of this guy poking Jan optics with a stick because it was like so boring and volume was so boring. Right. That was a summary, but we were seeing like these signals that that was likely to kind of come undone a little bit. Right. And it's come undone. Is it like Vix 30? You know it's going to show up on Wikipedia because it's been such a crash. No, but we're starting to see volume really start to move now. And to that point this is what we call S and P sku. So if you look at one month options and you see this bulge down here, right. This is telling us that people are starting to get into puts. Right. And this, this range is the, the teal band is 90 day range. So this is lifting. That's telling us that people are starting to get into puts. Now what's interesting about this is that if you look at the overall level of volume, it's not that high. Right. So this is what this is saying is this is the beginning of people starting to hedge. That makes sense, Jack.

[E]

Yep.

[A]

This isn't like the event happened and we're going to hedge now because we have to. We're getting margin calls. This is people getting nervous. Now does that mean the market crashes? No, but it adds fuel to a market crash. And just as you can say, we're nowhere near oversold signals in the, in the options market. You could make an argument that you could squeeze a little bit of volume out of this thing and bounces higher. Now what's the catalyst of that? I don't know. But what's different now versus January is people are starting to hedge. And this hedging can create downside convexity. What do I mean by that? If we start to move lower and volume starts to lift, then you have this negative gamma dynamic that has to be hedged. And also if volume starts to pick up, then you talk about Vega as well. Right. Or and Vanna. You know these, these terms that get thrown out, which I'll just say there's A lot more downside hedging that market makers may have to do. If that put exposure is picking up, which it, which it certainly looks like it is.

[E]

So is the idea here when people are slowly starting to buy puts, it could exacerbate a market decline. And I'm just trying to contrast that with like if people were going insane and buying puts left and right, it could signal a reversal, right? If it was the other way, yeah.

[A]

So if you think about this, like, let's just talk about it in terms of the Vix, right? If the Vix is at 80 and you buy a put, you're probably never ever going to make money on that put because it's so expensive, kind of like silver and buying calls, right? It's so expensive that even if the market continues to go down, your put still not likely to pay. Why? Because the VIX is telling you that the prices of options is insane. And so when that is crazy, there's a lot of traders out there go, I'll, I'm going to sell that put, right? Because I can make money. Even the market goes down, the options are so expensive, I'm just going to do it. We use the analogy, right, Jack, of like, you don't want to sell your house, but if I offer, you know, 100 million for your house, you're like, here, I've never been to your house and I don't think it's worth 100 million, right? It is. You want to move, but 100 million, fine. Okay, great. So you people come out and start selling those puts and, and that can create the flow for the market to bounce when that volume is so high. Right now Vix is at 15 to 20 ish, right? There's not enough risk there where you're like, I'm going to sell puts because you could easily see the VIX go up to 30, right? Which would suck because the stock market goes down, which hurts your puts and Vol goes up, which doubly or triply hurts your puts. So we're not at the spot where it's like volume sellers want to come out, right? Puts aren't screamingly cheap, but they're not worth the premium. Like the risk premium isn't there for those sellers to come out. And if you're hedging, you're hedging something in a one month space where you're hedging something that's coming up, right? People are picking up on some risks ahead. And so I think that the hedges that are coming on here are saying like people are worried about downside here, and we haven't gotten downside, Jack. Right. So there's nothing. If you own a put, there's nothing to sell into. It's like, did the market drop 3 to 5% and you're going to monetize your puts? Well, that didn't happen yet. Like, market hasn't moved. I would also say that if we were down a percent like we are now and that skew didn't lift at all, what does that tell you? No one's hedging downside. They don't care. Right. And that's a sign in and of itself, the market goes down, but no one wants to hedge. It's like, okay, this was just some sort of technical adjustment. Fine. And we're going to buy that dip probably and move on. So the fact that the skew was lifting into downside is a signal that people are picking up on some risk.

[B]

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[A]

Experian.

[E]

So this next chart we're looking at the usual chart we looked at before with the four quadrants, but now we're kind of seeing how assets are moving over time, which is interesting.

[A]

Yeah, this. That's right. And so what's interesting about this one is we put on this trail and the trail shows the last five days of history and I include that because I think the movements have been really sharp over the last five days around the jobs data. We had CPI today, which is not going to be reflected in this data, but there's been some macro data which has, I think, solidified odds of a cut or Not. And so the, the trail is interesting because you see that silver volume come down, for example, right, Jack? And so remember, it was way up here. And now that silver's come down, I think Sov is around 70. You can see the ball is still rich, right? And people are in puts like. So the idea of silver catching a bid right here is not anyone's radar anymore in the options market. And in gold, it's very similar actually. That bullishness, right, that desire to own, own calls and lean into calls because gold is going to carry us out of whatever crisis is coming our way or whatever the macro implication, whatever it was, right? That, that, that bid for calls is totally faded. Same thing in bitcoin, right? These three assets are all, you know, together. Interesting about Bitcoin is that it's getting pummeled still, right? I mean, we're at. So last I checked was 65,000, which is certainly lows that we haven't seen in a while. But, but the IV is not that high. And I think that's interesting because if you were having this panic, fear washout, you would think that IV would be way up here. At which point then, Jack, I may be like, maybe it's time to buy that dip. But we're not seeing that washout. Doesn't mean that you have to have the high volume to have the low, ultimate low. It's just the, the really high IV is a great sign of a low, right? And so it's something I watch and then you just see that this, the trail here has gone from right to left, right? And that's the, that's picking up on the manifestation of, of people being bullish to, you know, losing hope in a lot of ways. And XLK in this case is a great proxy for the software stocks. IGV is a bigger ETF for the pure software. But the Vols aren't just. They're dirty. And so they give us some bad signal. I bring that up because you can see how these bounce software bounced. We had Unity and Applovin come out and just give horrible reports, right? Stock, those stocks dropped. And then that sort of was the second leg of the stool for, for software getting kind of, you know, revisiting lows. And so that's, you know, very chippy. So that's the downside. But look at what's getting bid, right? Long bonds. And, and Jack, you know, you know better than me probably that when people start to bid long bonds, it's a signal of that's not really a bullish exuberance. Equity bullish exuberance signal. Right. And, and if you look at a chart of TLT and you go, oh, it could go higher, I'm not a certified technician there. But you know, you could, you could make the case that that thing seems like it's bottoming on a, on a, on a quite a time horizon. So that bid in TLT is, is a new one and you could tell because it's the five day history. So you know that long bond getting a bid is, is maybe something that the equity market is really picking up on and, and causing us some, some problems and may cause us more problems here as we move into end of February.

[E]

This, this wouldn't be OPEX effect if we didn't have at least one bad macro take. So I will give one. Like the. What was interesting with silver and gold was that day we recorded last time that they were down a lot was the day Warsh was picked as the Fed chair. And like to some extent the argument was there's going to be less craziness I think with him relative to the high level of craziness we were expecting. And like to some extent silver and gold have been a bit, you know, the bid on them has had to do with craziness. Like the more craziness we have, the more they go up. So it was just interesting to see and I think it's, it's, it hasn't gone, it's changed a little bit since then. But it was just interesting to see that in like the reaction to the Warsh appointment with, with silver and gold.

[A]

Yeah. And, and you know what's funny about that too is that we, we think about gold and silver crashing from those highs and I, and I try to make the argument that those things were crashing right from they went convex, right. And we should have the chart up here, but those things went convex at a ridiculous rate. You know, you remember this slide here we're talking about stock up volume up in silver, right? And it's this huge crowd of trade they crashed up. And so you just needed a catalyst for it to finally sort of solidify that that is over. And then all that volume's got to come somewhere, right? And it has to express itself down. And that's basically what happened. So you know, I, I think if you look at a long term chart of silver or gold, like the uptrend is probably still there and you go, well worse. You know, wars crashed. Gold and silver, they were crashing before, right? They just mean reverted to, to a trend and, and there was no way they could sustain that level of volatility. Right. It couldn't last. So I think, by the way, that.

[E]

Gets into like a lot of what we're trying to talk about here, which is this idea that like, I, I, my, my response there was kind of what you'd see on like CNBC or something, which is like there was this big move now, I have to explain this big move with some sort of fact, like, and the fact is, Warsh, when the reality is maybe that was a catalyst or something, but the reality is maybe something going on behind the scenes played a much bigger role in that than who the Fed share was.

[A]

Yeah, there are flows that had to unwind in those assets. And so Warsh just happened to be, maybe he was the final signal for that to sort of say, okay, like this could kind of unwind and then that momentum spills to the downside to that point. You know, the silver ETF was what, 50 or 30 a year ago? Uh, it's still at 75, which, you know, you know, things still up whatever, 10, 20% in like two months or whatever. So, you know, I, I, I think that now you think like the demise of gold and silver here. But they had to mean revert, like, there was no way. It couldn't, the rate of change to the upside was just too fast and the options market was screaming. That took a little bit longer, I think, for it to mean revert than I had expected. I, I would say. But ultimately you get that mean reversion and, and record options volume right at the top. So, so it's interesting and I think that those are important signals to watch, particularly here where you see TLT getting bid and you're like, well, that's a very liquid options market. So that's a real signal. Right. You know, and the, you can, you could tell that there's this bearish quality to the market now, whereas in January, everyone's bowled up, remember, everyone's over here in this quadrant. So that, that sentiment has really shifted. And I think the concern that I have here is that, yes, the sentiment has shifted, but that volume is not that high. You could easily jack that volume up, you know, like to the point of Core1M being at this very low level where you go, okay, like, we are, we've hit the lower bound of what volume can do now. Like, we are at the trough. Like, there's no volume, can't really go any lower. Worst case is we stay at this level, whereas now we're kind of like, it feels more like we're getting warmed up, I guess, you know, is, I guess the sentiment as opposed to sort of this oversold condition.

[E]

So, as you know, I love a good heat map. And here you've got a NASDAQ correlation heat map.

[A]

Yeah, this is, this is a fancy one that I pulled out of the, of the box here because I was trying to put into context a little bit what the difference is between how single stocks move in the NASDAQ in this case versus the NASDAQ fall itself. Because there's a lot of funny things happening. And I guess when I put this chart together, I was expecting there to be this very kind of aberrant data point where, you know, we're way down here, way up here. But what we're seeing is actually kind of normal. Right. The level of volume in the NASDAQ sort of syncs with the level of correlation that you can see here. We're not really at these extremes. And I guess that's kind of what the theme of this presentation feels like it's coming out to be is like it's not yet too hot, it's not yet too cold, but like stuff is starting to percolate. Right. We were down here on this chart a week or two ago. So we're starting to move up and this is the spot where stuff starts to break. Like, you get these highly correlated moves and volume spikes and you end up with one of these situations where, you know, this is where again, something breaks. Like a April of 2025 situation or, you know, I'm sure we had some ball spikes. Excuse me, after that. But, you know, we're, we're, we very easily could be working towards one of those, these events, which has me really concerned because OPEX could finally release a lot of this stuff is what is the way that I'm really thinking about this. But that being said, you know, I'm definitely leaning that way. So I want to be clear on that. I'm not like this is the way that it has to go. You could play devil's advocate. Well, they could sell volume down again and then spike the market back up. Like maybe, you know, Nvidia earnings are on the 25th, I believe. So, you know, that's, that could be a little bit of a cleansing situation. But I think what the challenge is here is finding a vector to invest in. And it's not clear where that is. Like, Mag Sevens are kind of beat up. What's the story there? Software's dead, you know, housing in these financially related stocks. Well, if Rates aren't going to go down anymore. Do you still want to play in that space? So, you know, it's a, it's a very cloudy picture at the moment and, and Risk now has moved to the spot. Like this is the spot that we crash from. Right. You generally don't go from 0 to 100. You kind of stage at 51st and then jump off and we're kind of at that 50 stage, if that makes sense. Yeah.

[E]

And it's interesting because I was thinking like from my level, at a fundamental level, like I was thinking about 2000 and comparing this to that and you know, people always compare this to that and think it's the same thing and it never ever is. But there's two different aspects here. It's the same in that a lot of the behind the scenes rotation you're seeing is kind of similar to 2000 in that these types of stocks, these value stocks, these small stocks that are going up. That's what happened in 2000. What's different about 2000 right now is the market's not going down.

[A]

Yeah.

[E]

So the market was tanking at that point. And value in Russell, 2000, that kind of stuff was up. Right now the market's holding on, but you're seeing that rotation behind the scenes is kind of similar.

[A]

Yeah, I, I think that's totally, I think that's a very good kind of analogy. The, the, the rotation is there. And as you quoted at the, at the start, like the, usually this means this. The, the markets crash. Right. And, and Miguel gets back test of a data point show, you kind of says the same thing. And so, you know, as we're sitting here going like the market should have crashed, like we're sort of in the, in the midst of this stuff happening. So a month from now, we could be doing the March opex, like, oh, look, it crashed. Right. So, and I, and I. Your point is the same, I think is what I'm seeing here is like, you know, this is the point where you jumped. Like, we don't have to jump. But, but dang, you know, this, this is a risky position.

[E]

Yeah. And that's the whole point is, you know, it could play out either way. You know, it could be a warning sign. We may look back at this and be like, this was a huge warning sign of what was to come. But also like, this could be different than 2000 in that you get this rotation, but you don't get, you know, the market decline that follows or the rotation could unwind itself, you know, and people like me who've been saying value is going to come back forever, could be wrong again. And you know, we, we get right back to the. I mean, I don't know the answer to this as, you know, like, I'm more about thinking about possibilities than trying to figure out what's going to happen.

[A]

Yeah. And I think what we need to see is stuff move to some extremes. And for all those who are sitting here saying, great, Brent, Jack said buy it and sell it in the same sentence, there's some pretty clear levels where you can lean one way or the other. And so I'll talk about those in a second. And then I think there's some interesting trades that you could put on right now. And so that is sort of what this is. But there are times where it's like, look, everything is fine and there's not a lot to worry about. Or the message of the last OPEX effect was, you know, this is all too quiet. And so VOL has picked up from those really low levels. But, you know, that's not crazy. Like if you're laying on the floor, the only thing for you to do is like at least sit up. Right. So we're kind of like at that stage level. And I think like there are times where it's like worth risking a lot of your capital or putting your capital at risk because the waters are pretty clear and the in the skies are blue. And like right now it doesn't seem like one of those moments. Right. So you know, that, that is, that is one of the things to watch out for on this point about when correlation spikes. So, so Jack, you can see when we were down here earlier this month at, at this kind of sub 8 level, the blue line is this correlation metric. We're now at 17. Well, 17 is this spot where it's like, okay, a lot of times like on this index. And I don't want to overweight discussing an index, but you know, there's sort of like this is kind of where it gets to be. And then correlation comes back down. Stocks go up. Right. Or you have these big spikes. Right. And why this matters, because the green line is vix. These two are very correlated. When correlation spikes, VIX also jumps. So again, maybe it's fine and. Or maybe we're about to have a 3 to 5% drawdown. Right. And that's the risk is like there's not every day where that risk is really material. 3 to 5% drawdown. But in this case it feels kind of material. We've in previous discussions Talked about the quickening of this stuff, right? Where correlation drops real sharp. Trump tweets in October, market crashes 3% on a Friday. Everyone's like, what in the heck just happened? You're like, I don't know. And then what happens? Like a week later, we're up November, same thing happens, right? Correlation goes down, bam. Market crashes, opex, we spike. So there's this cycle that seems to be quickening now from an options, you know, guy, I will blame the Options Market Levered ETFs. Whatever your reason is, it is what seems to be happening. There's a quickening or, or the volume of Vol just seems to be, you know, quite a bit higher. And so you see this in the single stock space too. We've talked about this in the past. Remember Nvidia drops 14% because of deep Seek, right? And you go, what? Wait, why should the biggest stock in the world lose 14%? I think at the time was the biggest market cap decline in a single stock in one day ever, right? My memory's a little fuzzy on exactly the date of that. I think it was January of last year, wasn't it? You know, and so you get that outside. Then remember, Trump and Elon start a Twitter fight. Tesla drops, I think 15% in a day. And you're like, what the hell? The reaction is more extreme now because of the positioning and the flows. And so people think it's more important. And that's kind of one of the things I think is happening in software stocks in some way. But that volume, volume is just much higher now. And I don't think that environment goes away. And I think a lot of that is related to the options market because we see these correlations, like we have these conversations like, look, this is a risk signal. Correlation and vols are offset. This is a risk signal. And then the market, you know, has these spasms, right? And it happens too much to be a coincidence where I think you have to respect that this is the impact of the options market on equities.

[E]

And this is to some extent, this is why I love looking at this stuff. Because so to give you an example, I think back to Deep Seek, right? So with Deep Seek, the market tanked. I think options played a big role in that, or certainly these stocks tanked. But there was an opportunity in that for people who could see through it, who are fundamental investors and are like, well, this name is going to be impacted, but this name is not. And that, that's probably the same thing on the software side. Like probably some of These software companies are going to be like destroyed by what's coming in the future. But some of these other ones probably aren't going to be. So it's just interesting, like if you are a fundamental investor, sometimes some of this other stuff can, can provide an opportunity for you if you can discern like which stocks are really are down just because of everything else is going down and which ones are actual opportunities.

[A]

Right. And to the point of like the software space, I don't know which ones have a defendable moat. Right. Or should persist to exist in the face of, you know, Claude code or open cloud or whatever other lobster system comes out. But the point of it is, is that as a fundamentally guy, okay, I have to discount, you know, their earnings now by 5% because of Claude code, whatever your number is. And it takes you more than a minute, I'm sure, to figure that out. Right. And, and so there's the correlation where it's like, okay, sector gets sold off because everything gets sold off. That makes sense. But maybe the sector should have only sold off 10%, but instead the sector is down 20% because of, you know, the, the volatility space. Right. And things happening in the options market. And so, you know, to that point, Nvidia and Deep Seek, maybe that should have been a 5% decline, not a 15% decline. And you know, so that dip becomes more investable because you know that the move is being exacerbated by these options flows, which is ultimately leverage. Like that's what options is. It's levered leverage, stock trading.

[E]

That's exactly right. And that's how, that's one of the things, I think fundamental investors can learn a lot from your work, which is, I can understand, you know, this is probably worse than the fundamentals suggest because of all these other effects that are going on. Like if I like some stocks in this, you know, in software, you know, it might be a good time for me to take a look at those stocks because this has probably been exacerbated by all these flows and everything else going on.

[A]

Yeah, and, and gold and silver to the upside, it worked the same way like that, that convexity to the upside was, you know, equity options, commodities, you know, futures options, that, that just being levered to the upside. Right. And so, you know, if you understood that, maybe you would have saved, you know, selling some of your silver at 100 or something like that. You know, I don't know. But it's, these are things I think you have to really kind of consider now to the point of so, so this chart is dispersion. So how much movement are these stocks having versus correlation is, is about. Are they moving in in conjunction with each other the same direction? Right. And what I thought was interesting was to the point of software stocks and some of these other stuff moving so much and you look at correlation core 1M this, this is just an index again from the CBO core 1M measures the top 25 names, maybe top 50. I'm a mind blank. Versus the SPX. Right? So top stocks versus the SPX index volume and it's not that high, right. In honesty it's not very extreme. But the movements under the surface are quite extreme. And so you say to yourself, well you know, that doesn't quite sync up. Right. And why is that? Well, these software names as an example, I keep touching on software but they're having the biggest moves. What about crypto names? Right. They're not in the top 50 so they're not going to infect or impact this index. But this is dispersion index again this is from Nomura and what they're showing here is that stocks are moving at just insane amounts. Right. The average stock there is moving 10%. That's just the average. Some of those are moving obviously way more. It's not the mean the median. Right. And the index is not doing anything. So how do you put that into context? Well, this is a great chart and I put it in a few places. You gotta go back to the Internet bubble Jack, which you mentioned before and then the GFC right to, and then Covid. Right. To hit this kind of dislocation like this is pretty bananas. Right. And you have to kind of find the right measurement to sort of unveil this, this, this idea of how kind of rare this is. Right. Because the correlation data in this case is not really picking up on it. And if you just look at the S and P price it's like well whatever, nothing's happening. But this is very, you know, very unusual. And the forward returns, I'd have to have to look them back up again. But, but they're all negative. If you look forward on like a two week to one month basis, if I have that correctly, you know, quite negative, you know, not. And this is not necessarily today tomorrow signal. It is a, you know, weeks to as much as a month kind of negative signal. Right. Kind of to what? Again, you were talking about the top. So it, this is, this is a very strange environment and, and it is very disjointed. Right. And I think the Only way that it gets back to being sort of regulated is to the downside move, where everything sort of just resets and sinks back up. These things usually don't sort of reset to the upside. They don't usually sort of, you know, get back in order in a rally. It generally takes a washout to kind of get it all. Resync, we heard you. Nine years of bring back the snack wrap and you've won. But maybe you should have asked for more. Say hello to the hot honey snack wrap. Now you've really won. Go to McDonald's and get it while you can.

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[E]

And you've got some slides here with the craziness going on in software, which it's hard to even. It's hard to underestimate. It's like, it's so crazy, like, looking at some of these names. I mean, I know you've got Salesforce coming up in a few slides, but, like, I think Salesforce is like 50% down and it's a massive, massive company.

[A]

Massive. Some of these companies just, you know, and 30% down this month. I gotta be honest with you about this, Jack, that I was surprised was there was a similar move. You know, this is. This is obviously the tariff tantrum, right? And all that sort of stuff. Freaking out. And so, you know, you start to put that into Magnet and you're like, wow, this is kind of like a. For the software guys, this is kind of a biblical, you know, move in a lot of ways. So this matters for some of the vault stuff we're talking about and some of these other topics we were just talking about about. Is this just too much to the downside? And you talk about like, CRM, you know, yes. Openclaw and Claude code and all that sort of stuff that's out there. And it's real. But you're sharing your keys with everybody. The code, it breaks all the time. If you're a huge company, you can't just sort of like vibe code a CRM necessarily and have it be, you know, so like the death of a lot of these stuff seems to be premature and overextended. A lot of banknotes are pointing to that. Like of course there's winners and losers but like a CRM is a great example. Where is a 50% drop warranted here? I don't know. And also you're going to assume that the company doesn't do something in response to this. It's a little tough, right? Very murky, it's very hard to forecast with everything changing how that's going to impact. But this is a very extreme immediate move, right? This is not a trend lower. This is, you know, this is a beating and to put this into context, this is our compass but I changed it slightly. Right. So in this case what this is is put skew on the X axis versus IV rank. Now what is the difference? This tells you how expensive puts are not versus calls just how expensive puts are on a, on a relative basis specifically versus at the money options for you options nerds. And so what I think is fascinating about this is into reports next week I think it is might be on the 25th ADSK reports as well. And then you have CRM Snow Adobe's already reported I believe. Right. So these names have puts that are as expensive as they've been in the last year which was through, which was through the tariff crisis right in April of last year. So that's incorporated in this data. So the IV is is as high as it can get input. Prices are as high as they've been. These are one month puts. So if you think back to the silver being super expensive or on the other side of thing everyone being super bowled up in these stocks and you look at some of the stuff you go maybe there's a little bit of value here, right. Or at least there's enough volume that I'm going to be willing to sell some puts. This is me speaking, not financial advice. I might sell some options or sell some puts here because the ball's gotten so expensive. And not only that, if you look at CRM and into which are about to report implied volume tends to contract after earnings, right. Even if the earnings are terrible like in you you was up here, they reported bad earnings, stock dropped and the volume still came down. So this is in my view a great opportunity for options traders to come out put on some put spread structures that would profit if that volume starts to contract. It's a sign of to me also very oversold in some high quality stocks. Now I'm not a fundamental person so I obviously don't know but, but this high IV Rank means, oh, this is on my radar now for something that I maybe want to go buy. Because here's another scenario, Jack. Maybe the rest of the market just catches down to these things and so S and P drops 5%, but software just sort of relatively does okay because it's already paid the piper. Right. You know, I think that can be legit and on point. Datadog, which is an s and P500 member, they were up here, right in this area. They reported the stock bounce. I haven't checked it recently. Was up like 10%. Right. Why? Because it's a good company, as you know, it's not going to get killed by the claw. And so this is, this is the claw man. And he's feasting on some of that expensive put sku. That's the, that's the little joke up there. Yeah.

[E]

To your point, I kind of wish I wasn't, like, because I'm a Quan guy. Like, I don't, I don't pick stocks. My, my models pick them. And like, I kind of wish I was an analyst who, who knew this stuff because I, I would think we're going to look back and see that there were some huge opportunities in software for the people who knew the right companies to buy. And I think we're also going to probably look back and say some of these companies were doomed by what's going on with AI and like the, the people who have the ability to separate those things are probably going to do very, very well if you look out, you know, years into the future.

[A]

Yeah, I think that's true. And, and you know, in the short term they can bounce, which is my view, out in the future. You know, the fundamental. People kind of pick that apart. But I would say, like Palantir has been killed, you know, since Burry sort of flagged it. That was kind of the high. Right now I think the stock's down to from 1 90s down to 130, if I remember correctly. So if you look at some of this, you know, the puts are very expensive in this stuff, right? Microsoft, the puts are still very expensive. Palantir, even though the stock's all the way down from 190 down to 130. You know, puts are very expensive. So those stocks are way down. But the, but people aren't starting to sell puts in that space. Whereas if you look at like Datadog, which just reported that put Skew has come way down. Right. So the puts are much cheaper now after earnings, stock got beat up, but they reported good earnings. They have A defensible mode, et cetera, et cetera. Seems like people are now starting to maybe buy that dip a little bit more. Or at least the put values have, have gotten a lot cheaper.

[E]

So these next couple of slides reference Salesforce, which is what we talked about. It's been a crazy move.

[A]

Yeah. And I, I wanted to just sort of give an idea of how you look at this from an options perspective. And, and I realize a lot of people watching this may not be options traders. But, but here's why I think this is interesting. Ford implied volume is sort of our forecast for volatility. We, we can extrapolate based on this term structure where options prices should go. Right. And so the, the argument here is that each one of these circles is an expiration. And so in this case you would say here's earnings after earnings. I would expect the implied volume to go from this green line here way down to this dash line, right? So that's about a 20 point volume change. Does that make sense, Jack, the difference between these. Yes. So if earnings comes out, I would expect at the Money volume to drop by 20 points. That's a lot, right? 20 ball points for this name is a lot. And I know that because when I look at this, I know the volume is all jacked up. Right. One year highs in the ball. So if you go and this is an April straddle, so selling the at the Money options in this case is the 195 options. And why I think this is interesting is because if you don't adjust the volume. So this is selling a call and selling a put for at the Money for April. Right. And you can see how wide the band is here. In which case we would project you making money just a few days after earnings, about one or two weeks. Right. And this is what the dashed line currently projects. So if the Stock stays between 170 and 210 after earnings, roughly you should make a little bit of cash. Right? But if you adjust the implied volume, cause it's so expensive and you incorporate that 20 point volume drop, you can see the, the window at which this trade could be profitable expands a lot. Right? So why I think this is interesting is because 9 times out of 10 volume drops after an earnings report, that's really good for a straddle. And then second, if the earnings are just sort of like, okay, no big deal, even if the stock bounces, you know, 5 or 10%, this can still be a decently profitable trade because of the fact that that volume is just at such extremes Right. Now, you could take this and say, I only want to trade the put side of it because I think there'll be a bounce. Or, you know, you could do a bunch of adjustments. But I wanted to illustrate this because this difference between this dash line and this big green line here is the volume premium that suddenly becomes interesting as an asset to trade in when you have these really big volume spikes. And if people start to trade that volume as an asset, then it stabilizes the stocks themselves. If that makes sense.

[E]

No, that makes complete sense. So, yeah, you're looking at kind of the floor here. Right. As we, if things do get bad on this next slide, what the floor might be.

[A]

Yeah, our risk offline has been 6900 through from January to today. Right. And the argument is when we're below that, expect, you know, downside or soft market. Now, we've been whipping back and forth up and down across that line. So normally I would expect a trend down. We haven't gotten that. But 6900 is still the level. We're above that level. Okay. I think rally back on. Then we start talking about maybe taking out 7,000, et cetera. But as long as we're below that level. Right. Even today, we're bouncing a little bit. I think that we have to give edge to that sort of extreme downside. And if you started to say, well, at what point would the selling pressure from these dealer hedging flows sort of back off? In this case, we would use this GEX line, gamma line as a barometer. And this thing troughs around 6,600 in the S P. This tells me that the dealer hedging flows that may push the market lower would start to back off or, or reside or retract right in and around that 6600 level. So we're at 6800 right now. I think that after OPEX, the. The chance of something like this happening maybe grows. And as long as we're under that 6800 level. Excuse me, excuse me, 6900 level. You know, I, I want to maintain some hedges to that. And if we cross 6,800, then I'm going to be, you know, really pressing the bet that we start to visit this 6600 level, because it seems like that's where the washout would sort of lead us to.

[E]

So as we, as we wrap up here, you're looking at these new Monday, Wednesday, Friday options. You're looking at what they've meant to zero dte volume.

[A]

Yeah. And, and, and the takeaway here. Just a quick note because I know people are asking about it. Takeaway here is there's not anything obvious in the single stock space. We're only two, two and a half weeks in in terms of these options being launched. So market impact is kind of too early to tell. Right. But what I did think was interesting is this is a five day moving average of volume for the names that was rolled out. Nvidia Tesla are already far and away the biggest single stock options. They've lost a little bit now. Right. Which is interesting. And every other name that added these Monday, Wednesday, Friday options has increased in volume by quite a bit. And you can see the moving average here has really spiked now. Market's been a little weird and blah, blah, blah. So too early to tell, but they're, they're so far as the sign that the volume in these names is picking up quite a bit. And I suspect by March, certainly by April, we'll start to be able to suss out some actual market impact. So we're keeping an eye on this stuff. Volume is picking up, but ultimately a little too early to tell at this moment.

[E]

Well, as the, as the action's picking up in the market, the action's also picking up in the opex effect. Um, we've added, we got some more wild stuff to talk about.

[A]

Yeah.

[E]

And I'm sure we will again next month.

[A]

It's gonna be great. Uh, and we do have a giveaway if people want to go spotgaming.com full patrol. We have a week, a daily report. You get that for five days. It tells you where hedge funds are buying, the biggest contracts are buying and selling. So a lot of interesting names show up in there. And you know, a day like today, if people are buying app loving calls, then you would see that in that flow Patrol report. So please go and grab that.

[E]

I just want to reiterate what I said at the beginning. The subscribe button. If you're subscribed to access returns, it'll also allow you to subscribe to Spot Gamma as well. And check out last call because we're, we're trying to rethink a market rap show. And it'll probably be a little bit of an up and down as you'll, you'll see us potentially getting out of a private chat at the beginning or maybe not depending on if you're a believer in that. But check that out as well and if you have any feedback, let us know. But thank you, Brent. This has been fun.

[A]

Appreciate it, Jack.

[E]

See everybody next time.

[D]

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