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.

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.

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)

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)

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 |

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.

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]