Tesla, MicroStrategy and An Inside Look at the Biggest Options Expiration in Market History

[00:00:00] you push a balloon enough it pops and either you can have a ton of air in that balloon or you can have a little air like you compress it enough it's gonna pop.

[00:00:08] That might be our first valuation chart we've ever had in the OPEX.

[00:00:11] It's probably gonna be the last.

[00:00:12] I like the direction you're going here.

[00:00:13] It's probably gonna be my last as well.

[00:00:16] How stretched this pricing is is really pretty wild and I don't say that as a fundamental value to what Tesla could do next year or anything.

[00:00:23] I look at the vols and I look at the positioning in the market and it is really extreme now.

[00:00:29] Avgo, Tesla, all these names are pushing the market up a handful of names but all the other names are down 2.5%.

[00:00:36] So this market is not in sync at all.

[00:00:39] If you're took a mortgage out to buy MicroStrategy on your house and you think it's gonna be cheap debt well I got I got like news for you like you're you're gonna be upset that you made that trade.

[00:00:48] Welcome to The OPEX Effect, a joint podcast from Excess Returns and Spot Gamma where we take a deep dive into the world of options and the flows they generate in the markets.

[00:00:54] Join Brent Kachuba and Jack Forehand every month on Options Expiration Week as they look at the major developments in the options world and how they impact all of our portfolios.

[00:01:03] No information on this podcast should be construed as investment advice.

[00:01:05] Securities discussed in the podcast may be holdings of clients of OED CAPO.

[00:01:09] So Brent I feel like all of us in investing tend to always want to say like something is the biggest thing ever or the most extreme ever or whatever it is.

[00:01:15] And you know much of the time we're making it up but in this time we're actually not making it up.

[00:01:20] As we head into this OPEX I believe we are heading into the biggest OPEX ever.

[00:01:23] It's the biggest ever.

[00:01:24] If you want to be provocative you got to say things are extreme and in this case to your point we don't have to make anything up or stretch.

[00:01:31] We don't have to market this one.

[00:01:32] It is the biggest ever.

[00:01:34] As the options market has grown more and December's generally are always the biggest of the year.

[00:01:39] So this is it.

[00:01:40] The biggest.

[00:01:41] Congratulations Jack.

[00:01:42] Made it.

[00:01:43] Can you imagine what I'm going to do with the YouTube cover on this thing?

[00:01:46] I'm really hearing ideas like going in my head as to what I'm going to do with biggest OPEX ever but I've got all kinds of plans for this thing.

[00:01:51] Yeah I'm bullish on the number of views you're going to get for marketing purposes.

[00:01:56] I'm getting better at it at least.

[00:01:57] So at least I made a little bit of improvement.

[00:02:00] But yeah and we're going to get into all that today.

[00:02:02] We're going to get into what's going on behind the scenes.

[00:02:04] We're going to get into how you measure these things.

[00:02:06] We're going to talk about all that stuff.

[00:02:07] But first we always like to start just with a general overview of options and why they're important for investors who are not necessarily options investors and how they impact the stock market.

[00:02:16] So this first slide here talks about the growth of options and how important this is.

[00:02:21] The first slide talks about how great I am.

[00:02:23] Then the second slide we get into it.

[00:02:25] You skip that for a time on how great you are.

[00:02:27] I'm going to start there for a little bit.

[00:02:29] I like a formal picture of you.

[00:02:31] It's a very good, very different than what I see on the OPEX effect every month.

[00:02:35] Yeah, me like looking stupid as a tag to try to bring people in.

[00:02:41] Yeah, so we have record volumes.

[00:02:43] I totally interrupted my train of thought and your train of thought.

[00:02:46] So great.

[00:02:47] I've derailed our podcast two minutes in.

[00:02:50] All right.

[00:02:51] So most volumes ever, which will play into what's happening with the D-SOPX, right?

[00:02:55] The volumes continue to grow.

[00:02:58] We covered the foundation of how all of this works in a previous podcast.

[00:03:04] We want to depth on this, right?

[00:03:05] So you want to refer to that if you're interested in figuring out how these market making or options trading flows get into the underlying stock or how they impact the underlying markets.

[00:03:14] You can refer to that previous podcast.

[00:03:16] That was two months ago?

[00:03:17] Yeah, I believe two months ago.

[00:03:18] It was already the most in-depth look we had done.

[00:03:20] Yeah, so I think that was around October.

[00:03:26] So the way that we look at the cycle, as you were discussing before I rudely interrupted you, is that we look at this as a cycle where positions build up typically to the third Friday of every month.

[00:03:38] And then as those options positions build up, the hedges related to those options positions build up.

[00:03:44] And that generally kind of climaxes on the third Friday of every month, where suddenly the options positions that are there expire.

[00:03:50] The biggest set of positions expire.

[00:03:52] And then along with that, the hedging flows related to those positions go away.

[00:03:56] And that's why we think that options, op-ex can be oftentimes a turning point.

[00:04:00] Now, in addition to that kind of monthly cycle, there is a quarterly cycle.

[00:04:04] And then there's also an annual cycle.

[00:04:07] And so all those converge, the monthly, annual, quarterly, they all converge here on December options expiration, which is why it is the biggest expiration ever.

[00:04:16] And this can often be turning points in the market.

[00:04:18] So we've talked about December of 2018, the COVID crash in March of 23.

[00:04:23] And there's been a bunch of recent examples, too, of major lows in the market.

[00:04:28] My spidey sense here is we have a high in the market going into this expiration.

[00:04:34] Maybe not for all of next year.

[00:04:35] I generally only see about 30 days out.

[00:04:37] But there's a lot of topping signals that are tied to this expiration.

[00:04:40] And we're going to dig into that throughout the next few slides.

[00:04:44] Yeah.

[00:04:45] And we've seen so many great examples of the influence that options flows can have on the market.

[00:04:49] And we're right in the middle of this whole meme stocks and Tesla and whatever the hell Michael Saylor is doing over at MicroStrategy.

[00:04:56] I assume that probably has a really interesting options complex.

[00:04:59] But we've been seeing this in real time.

[00:05:02] Yeah, 100%.

[00:05:02] Tesla and MicroStrategy are by far the most interesting.

[00:05:08] I'll talk about Tesla.

[00:05:10] We talked about Tesla a lot in the last episode.

[00:05:12] We'll talk about it again here.

[00:05:12] We'll talk about MicroStrategy for a few minutes.

[00:05:15] But yeah, there's a lot of really bizarre things happening in the options market.

[00:05:19] And I think that the glue that's holding this together are the options positions that are expiring for December options expiration.

[00:05:25] And we're going to touch on those here just in the next couple of slides before we touch on Tesla a little bit later.

[00:05:31] So what we have here in these beautiful Christmas colors, Merry Christmas, Jack.

[00:05:37] When you hear from the general media, they're going to say that this is the biggest options expiration ever.

[00:05:42] True.

[00:05:43] And they're going to throw a number at you like $7 trillion.

[00:05:46] Now, the way that they arrive at that number is they take the amount of open interest and they assume that one contract of open interest is equal to 100 shares of stock in terms of notional value.

[00:05:55] So if you look at like a 13th filing, it does the same thing.

[00:05:58] That's not a great way to look at it.

[00:05:59] But Goldman set the standard.

[00:06:01] And so this is how the media likes to look at it.

[00:06:02] So we included this slide because you will hear a number like $7 trillion, which is kind of an absurd number.

[00:06:09] But even at this absurd number, it's the biggest ever.

[00:06:11] And you had mentioned before you didn't understand why the red boxes here, which are put values, and the green boxes here, which are call values, are roughly equal.

[00:06:20] And that's because we're measuring in this chart the Goldman way based on open interest.

[00:06:25] So put open interest and call open interest is fairly equal.

[00:06:28] But obviously, those notional values aren't the same because we've had a huge rally in the markets.

[00:06:33] I'll show you a different slide in a second.

[00:06:35] So this doesn't account for the fact that the calls are worth a lot more than the puts right now.

[00:06:38] This does not.

[00:06:39] That is 100% correct.

[00:06:40] And the reason I include this slide is, number one, so when you go, hey, spot gamma is way off because Goldman says $7 trillion.

[00:06:46] I want to explain what that is.

[00:06:48] The second one is this really frames how big the S&P complex is, which is this left side, these two boxes.

[00:06:54] This is just S&P size expiring versus these are all ETFs here in the top right, single stocks here in the middle, and then the other indices, Russell, Nasdaq, very, very, very small relative to S&P 500.

[00:07:06] So S&P 500 is just this beast of an options complex, which is really fascinating.

[00:07:11] So if you look at it the more sensible way, what we call the delta notional way, this is how this all breaks down.

[00:07:18] We have roughly $1.9 trillion in value expiring, and this is stock equivalent value.

[00:07:23] So what we do here, Jack, is we take the calls and we look at the call deltas, so how big are the call positions relative to puts from a value standpoint.

[00:07:33] And as you can see here, it is really dominated by call positions, 1 to 10 roughly ratio of call values relative to puts.

[00:07:42] And that's true across kind of single stocks, ETFs, et cetera, as well.

[00:07:45] The interesting thing here is if you look at the ETF complex, it's bigger if you look at from a Goldman lens, the open interest value.

[00:07:52] But when you look at it from a delta value, the stock complex is bigger than ETFs.

[00:07:56] It's just something interesting because you do see the impact of how you measure it there.

[00:08:00] So if you think about it, Colin, you should talk to the media and have them use your numbers instead of the other numbers.

[00:08:04] I tried.

[00:08:05] I have a feeling with the media, like the bigger number always wins, even if it's not right.

[00:08:08] So they'd much rather say $7 trillion than $1.9 trillion.

[00:08:11] So you're probably fighting uphill, I guess.

[00:08:13] Yeah, 100%.

[00:08:13] And when I try to push the other number, they go, well, now we've set the standard of measuring in trillions, 7, 8, 9, 10 trillion or whatever.

[00:08:20] When I come along with that smaller number, they just go, that doesn't sound as sexy as a bigger number.

[00:08:25] So when you think about the surge of Tesla and the surge of Apple and all these, you can now see that value really surges in the single stock complex, creating about $180 billion worth of single stock calls expiring relative to 50 billion in puts.

[00:08:41] So it's a really big, obviously, complex.

[00:08:45] And then inside of that single stock complex, there's certain names, a lot of Tesla, Apple, that have much bigger options expiring micro strategy relative to the bottom part of the S&P 500 or smaller cap stocks.

[00:09:00] So this next slide really gets into the call dominance here in this expiration.

[00:09:04] Yeah, blue's call values, again, the delta's orange is put.

[00:09:07] So you can see it's about 10 to 1, maybe a little bit bigger, depending on exactly how much Tesla moves up today.

[00:09:13] I mean, I say that tongue in cheek, Tesla is just going crazy.

[00:09:16] I want to show you some values from our system here, bananas.

[00:09:20] But there's two things I want you to take away from here.

[00:09:21] Number one, the December expiration is huge, but the January expiration is also very, very large.

[00:09:27] There's a lot of leaps that people put on, right?

[00:09:29] Long dated position, the Pelosi trade, we've talked about this a lot in the past.

[00:09:33] So there's a lot of value in options tied to the January options expiration, which times with the inauguration and a big FOMC at that January time frame.

[00:09:43] So that is something to think about for everybody as you kind of chug your eggnog here and think about these OPEX.

[00:09:48] Look forward to that January as another potential major mark or pivot point in the future.

[00:09:55] How is 10 to 1 in relation to what we've seen in other ones?

[00:09:59] I mean, we've seen a lot of other call dominated OPEXs.

[00:10:01] Is this like very high or is this pretty consistent with the other ones we've been seeing?

[00:10:04] If you go back and look at the most extremes we've had.

[00:10:06] So July of 2024, for example, when NVIDIA was just going up 20% a day, you would get these kinds of values.

[00:10:14] But it is, you know, historically calls have a bigger position than puts in the single stock complex.

[00:10:20] But this is very stretched, right?

[00:10:21] And it's not hard to believe or put your mind around because look what Tesla's up 75% itself since the November election, right?

[00:10:30] And Meta, Apple, Amazon, Google all at all time highs.

[00:10:37] So, you know, those stocks have all ripped.

[00:10:39] And I was making fun of you and the value complex before.

[00:10:42] We're going to have some slides like IWMs are down and Dow is down, right?

[00:10:46] 10 days in a row or something like that.

[00:10:48] But these mega caps, which is where all the options trade, are at all time highs.

[00:10:52] So there's a real divergence here.

[00:10:54] But this is extreme, right?

[00:10:55] It's not mind-blowing extreme, but this is kind of the upper bound of stretched that we've historically seen.

[00:11:05] So in this next slide we're seeing, we see the zone in most episodes.

[00:11:08] And we're seeing the zone here, 6,000 to 6,100.

[00:11:10] Yeah, and the zone is interesting because I think that it, you know, we check ourselves every time we do this recording.

[00:11:19] And so I get to go and delete the old slide and then the new slide.

[00:11:21] And I go, okay, this actually made sense.

[00:11:22] And so these zones are, you know, they're sort of naive ways to look at big positioning, right?

[00:11:28] So all we do is we have call gamma in orange, put gamma in blue.

[00:11:31] And we just say, give me the open interest and assign the gamma here.

[00:11:34] There's no netting or fancy positioning logic here.

[00:11:36] And what you see is we have a giant amount of positions at 6,000.

[00:11:40] So that's a huge support level into Friday.

[00:11:43] 6,100 is this level we call a call wall, which is a resistance level into Friday.

[00:11:47] And then right here in the middle is 60-50.

[00:11:49] So, you know, you just have this, and I've made this Justin Tucker joke a few times.

[00:11:53] I don't know if you watch football, Jack.

[00:11:55] Yeah, he's the kicker, right?

[00:11:56] Yeah, he missed like 15 field goals the other day.

[00:11:59] So I was like, you know, I was like anybody but Justin Tucker can line us right up here in this range.

[00:12:04] So this is 60-55 is interesting too because the JPMorgan caller, the call strike.

[00:12:11] So there's 45,000 calls that expire on 12-31.

[00:12:14] So if you go back and look at our September OPEX episode, you will see that we pin 57-50 from FOMC into the end of September because that's where the call was positioned.

[00:12:24] If we don't shake under 6,000 or over 6,100 by Friday's close, then I think we're just pin 60-55 in the JPMorgan strike into 12-31 expiration because there's so much gamma there.

[00:12:37] And so this is this zone that is really just pinning the S&P down.

[00:12:41] And what's interesting, yesterday the Qs were up 1.5%.

[00:12:44] I think the Russell and the Dow were down a bunch.

[00:12:47] And the S&P was only at 50 bits, right?

[00:12:49] So that lower performance, that pinning is a feature of all of this gamma, which is just kind of suffocating the S&P 500.

[00:12:57] And when you think back to how big the options complex is in the S&P 500, well, you suddenly see how the options positions can be so controlling in the S&P, but not as impactful in, say, the NASDAQ or the Russell.

[00:13:09] And this plays into that dispersion we've talked about before too, right?

[00:13:12] If the index is pinned and those types of things are going up, then it's not great for my value names probably.

[00:13:18] Yeah, yeah.

[00:13:19] And it's interesting because you think about I want to be really bullish into the end of this year, and we have a chart on the seasonality here coming up.

[00:13:25] You go, well, if I'm long the S&P, I in theory may not perform better than 25 or 50 bits if I'm around these levels because I'm going to pin these big gamma strikes, right?

[00:13:35] Now, a bunch of these positions are going to shift.

[00:13:38] Outside of 60-55, about a third or to a half of these positions will expire on Friday.

[00:13:43] But 60-55, if we're near that level, if we're in, I'm going to say, 1% of that level on Monday after, so would that be the 23rd or 24th, right?

[00:13:54] Then I think we just pin, particularly when you got that Christmas holiday in there, right?

[00:13:57] So the interesting thing is we could just pin because of the J.P. Morgan caller in the year, but then if you want to be bullish in the year, you better pick names that can move, right?

[00:14:06] Stuff that doesn't have this big positive gamma complex, a la tech, mega caps, whatever, you know, maybe.

[00:14:13] Probably not the names that your value names, more so the mega cap stuff.

[00:14:18] We have seen a few of like the Mag 7 show up on value screens.

[00:14:22] I have a chart on this on Apple.

[00:14:26] Yeah, so on this next slide we're talking about, we've looked at this idea about predicted volatility, and we've been pretty far to the right in most of our episodes, and we remain there now.

[00:14:36] Right, and so this chart shows you our gamma index.

[00:14:39] So the more to the right we are, the more positive the gamma is, which is generally a sign that there's bigger call positions in the S&P 500.

[00:14:45] So if you think about right now, we have the biggest options complex we've ever had in the S&P 500, record options exploration.

[00:14:51] There's a giant amount of gamma, and we're just realizing no volatility right now, right?

[00:14:55] The market, the S&P is not moving.

[00:14:59] So that makes tight daily ranges, and the one-day forward volatility is on the left axis.

[00:15:04] So given the amount of gamma we have today, how much do we move the next day?

[00:15:07] And as you can see, the more positive we are in this index, the less volatility there is in the S&P 500.

[00:15:13] So today we had a 30 basis point zero DTE straddle.

[00:15:18] What does that mean?

[00:15:19] That means that the S&P was pricing in, in the options market, only 30 basis points of movement, which is the lowest that we've seen since before the COVID crash.

[00:15:28] So the market is anticipating no movement.

[00:15:30] That's for today, likely to happen tomorrow when you probably put this out.

[00:15:33] And then, of course, we have FOMC on Thursday where people will probably expect a little more volatility in the market.

[00:15:39] So we have these real lows in volatility.

[00:15:45] So the effect, the gamma blanket is there, and we think it's causing a lot of this really low volatility.

[00:15:51] Then that blanket's going to get removed.

[00:15:53] A lot of stuff can shift, and that is why we think this could be a time for a top in markets.

[00:15:59] So you'd expect this yellow arrow is going to move left.

[00:16:01] You're 100% right.

[00:16:04] This arrow will go from here to somewhere around 1, if I had to guess.

[00:16:08] And with that, as you can see, forward volatility, the market starts to move more when we reduce that gamma.

[00:16:16] There is an OPEX effect.

[00:16:18] I think the effect has shifted in time a little bit.

[00:16:21] So it used to be you could kind of set your watch to OPEX day, and then we would shift right after OPEX day.

[00:16:25] Now you see the movement sometimes a couple days before, maybe even the day after.

[00:16:30] It's like the window's been getting played with a little bit.

[00:16:33] But the key here is that we went back, I think, five years in time, and we found when the VIX expiration occurs after OPEX,

[00:16:40] we see two-thirds of the time we see the market change course.

[00:16:43] So here we've been rallying into OPEX.

[00:16:46] VIX occurs after.

[00:16:47] VIX expiration is after December options expiration this year.

[00:16:50] So we would expect statistically the market to change course going from a rally to selling off based on this dynamic.

[00:16:59] Now the Fed is going to come in here, and we have the JP Morgan position, which could pin us.

[00:17:02] So those are things to consider.

[00:17:04] But statistically, there is evidence that OPEX has an effect.

[00:17:08] Yeah.

[00:17:08] And some of the stuff we've talked about in previous episodes in terms of like a very large OPEX, a very significant move in one direction,

[00:17:13] a lot of those things are present that we've seen in some of the other OPEXs, at least where there's been reversals.

[00:17:18] Yeah.

[00:17:19] Yeah, absolutely.

[00:17:20] And, you know, we can just look at this chart here, right?

[00:17:25] I'll talk about this in a second, but look at the market move into October expiration, right?

[00:17:29] As soon as OPEX hits, you know, the market drops a lot, right?

[00:17:33] Right into November, the market drops a lot, and the low is on OPEX day, basically, right?

[00:17:37] So you see this big movement or these swings timed with options expiration kind of time and again.

[00:17:42] Like I said, it's been a little trickier to forecast exactly when it's happening.

[00:17:47] You know, you used to be able to kind of set your watch to it,

[00:17:49] and now I think you've got to position it for OPEX a day or two before, kind of like now,

[00:17:54] position a day or two before, and then wait for a few days after potentially to play the impacts.

[00:18:01] Is a lot of that because people know what's happening and they're trying to front run things?

[00:18:04] I think that's a big part of it.

[00:18:07] And I think that the other impact is short-dated options positions.

[00:18:10] So 55% of the S&P flow now is zero DTE, which is crazy in single stocks.

[00:18:15] Depending on the stock you look at, it can be a little bit different.

[00:18:17] But I think there's the zero DTE impact, and I do think that, you know,

[00:18:21] there is some kind of front-running some of these positions as well, right?

[00:18:27] Now everyone's aware that these positions are going to shift,

[00:18:29] and so maybe there's some games and shit related to it.

[00:18:32] So I think there's a couple of different factors, and that to me is all theory.

[00:18:37] I don't know for sure, you know, why the timing shifts a little bit.

[00:18:42] But, you know, look here, VIX-OPEX, you know, the low is oftentimes made in the VIX expiration day, right?

[00:18:48] So, you know, you see these fingerprints all over, and so you're like, you know it's coming,

[00:18:53] and you can't always totally pinpoint the why.

[00:18:56] But at least the timing is obvious because you know exactly when the expiration is coming.

[00:19:01] So as we take a look back at what we looked at last month, we start with Tesla.

[00:19:05] And Tesla's, you know, we can get into the OPEX stuff, but I mean, you have to say,

[00:19:08] regardless of what you think about Musk or his political beliefs,

[00:19:11] I mean, from a perspective of his assets that he holds, he's played this basically perfectly.

[00:19:15] I mean, he essentially has doubled his stock since the election.

[00:19:18] He now has tons of influence in the new administration.

[00:19:20] So regardless of what he believes, this has been like textbook work by him

[00:19:24] in advancing his own personal causes.

[00:19:26] Yeah, I heard yesterday that his net worth is up 60% from the Trump election,

[00:19:33] which is staggering because he was already the richest person in the world,

[00:19:36] at least the, you know, sorry, I was going to joke about some conspiracies there.

[00:19:42] But so he's allegedly the richest person in the world,

[00:19:44] and he's made something like $4 billion a day is what his net worth has gone up,

[00:19:50] which is just staggering.

[00:19:52] We wrote a long piece about, on November 7th, about how much we thought that Tesla could go up

[00:20:00] in this ludicrous mode idea.

[00:20:01] And the reason that we bring this up is because when you look at the impact of options trading,

[00:20:06] we think that it skews the distribution of price.

[00:20:09] So everybody would have said, if you did a survey, do you think Tesla will go up if Trump wins?

[00:20:14] I bet you 90% of people would say yes, right?

[00:20:17] And that's not like a shocking statement.

[00:20:19] But the idea that it would go up so much faster than what people expected,

[00:20:22] I think was a unique idea.

[00:20:25] Now, I will say that we wrote a piece two days ago when Tesla hit $420 saying,

[00:20:29] all right, like this has gotten a little crazy.

[00:20:31] And then in pursuing two days, the stock went up another 10%.

[00:20:34] So I'm wearing, you know, I'm wearing a little bit of a bad call in the last two days.

[00:20:38] But how stretched this pricing is, is really pretty wild.

[00:20:44] And I don't say that as a fundamental value to, you know, what Tesla could do next year or anything.

[00:20:48] I look at the vols and I look at the positioning in the market, and it is really extreme now.

[00:20:53] So kind of too much, too fast.

[00:20:55] But, you know, clearly Tesla has been just a banger these last few weeks.

[00:21:02] We talked about how big the call positions were relative to puts.

[00:21:05] Would Tesla become the new king of the options complex?

[00:21:09] Ironically, the NVIDIA was the king, right?

[00:21:12] And so NVIDIA can't catch a bid, right?

[00:21:16] Even though the market's up a ton right now, NVIDIA can't catch a bid.

[00:21:20] And Tesla is just dominating the options complex right now in terms of values.

[00:21:25] And so, you know, I think it's hard to say that it's not back.

[00:21:28] We also made this joke about we've had two of the three, you know, captains of the memes.

[00:21:33] Well, Rory Kitty came back with some weird 69-420 joke.

[00:21:37] And we saw a staggering amount of calls trade in GameStop.

[00:21:43] Somebody bought something like $30 million of January 125 calls on Monday night.

[00:21:49] Five minutes before it closed.

[00:21:50] So these guys are all back.

[00:21:52] I queued up an ARC chart because we were talking about ARC having such a big Tesla position, right?

[00:22:04] And ARC is up 25% since the election, which is right here.

[00:22:07] So, you know, ARC is just a—I'm trying to think of what the term is for—a product of the Tesla environment here.

[00:22:16] And, you know, I was laughing and I was, like, zooming out on this thing.

[00:22:19] It was like, how crazy is crazy?

[00:22:20] And you go, like, well, this is probably even more insane.

[00:22:24] And so, you know, who knows with this stuff anymore.

[00:22:27] But, you know, this stock's up 25% since the election.

[00:22:30] Feels like, you know, we're all getting a little stretched in terms of—in those respects.

[00:22:37] I'm curious.

[00:22:38] On the Kitty, did it work on GameStop?

[00:22:40] I mean, it did for, I guess, short term.

[00:22:41] But, like, I'm wondering if he lost some credibility because the live stream didn't go very well.

[00:22:44] Like, does he still have the power to move the stock like he used to?

[00:22:47] He does.

[00:22:48] But it doesn't—you know, this is such an interesting thing, right?

[00:22:52] Because GameStop, you know, it's up on whatever that call buying was.

[00:22:56] This is what I was talking about yesterday where that giant call position went up.

[00:22:59] So, you know, it moves, but it is not what it was in 2021.

[00:23:03] And I do think that, to your point, you know, he lost a little bit of credibility in terms of his pumping power.

[00:23:10] And, you know, everything now is just kind of like a meme and like a joke.

[00:23:13] And the big one now is microstrategy, right?

[00:23:15] And Michael Saylor as the, you know, the guy who's just going to crush fiat money and all this other stuff.

[00:23:23] And so, you know, these are investing strategies now tracking the memes.

[00:23:27] And it works.

[00:23:28] So I'm not here to throw shade on it.

[00:23:31] If you make a lot of money tracking memes, then great.

[00:23:33] Warren Curry is obviously the OG of memes.

[00:23:36] But I don't think that—the market has hit to, you know, GameStop trying to get squeezed, right?

[00:23:43] And I think that a lot of the meme energy has now moved to—the attention's fractured now and moved to things like GameStop.

[00:23:50] Or, excuse me, crypto and microstrategy.

[00:23:54] So, you know, the big position was at 400.

[00:23:57] We flagged that as the major high.

[00:23:59] This exact giant position now, the biggest position is at 500.

[00:24:03] As we talk now, Tesla's at 469.

[00:24:06] Elon Musk would probably find that to be hilarious.

[00:24:09] It's always 69 with him, like.

[00:24:11] Like, literally turn it into the quote-up to spring.

[00:24:14] Like, literally—I mean, literally.

[00:24:15] It's not me making a joke.

[00:24:17] It's literally—that's literally what the price is.

[00:24:19] I'm not a child.

[00:24:20] My wife would probably say something different.

[00:24:22] But, you know, there it is, right?

[00:24:26] So, you know, there's a huge position there.

[00:24:28] And we're going to talk about why I think it's topping out here, but this is the point, is that, you know,

[00:24:32] this is what we were talking about in November.

[00:24:33] And the prophecies filled.

[00:24:35] This thing just got nuts.

[00:24:36] The other thing, too, is, you know, calls had a bid to them, right?

[00:24:39] They weren't crazy in a lot of the other stuff, like the Mag 7s.

[00:24:44] But Apple, all-time high, 250.

[00:24:47] Meta, absolutely ripped.

[00:24:48] Google's at 200 now, all-time high.

[00:24:50] Amazon, gone crazy, 230, right?

[00:24:53] And some of this is on chips.

[00:24:54] I think that these companies are all now coming out with chips.

[00:24:57] And I think that may be why NVIDIA is kind of sucking wind here.

[00:25:00] Quantum computing now, everyone's bidding those balls up.

[00:25:02] So, you know, these memes are really, they're stretched and moving.

[00:25:07] And, you know, the whole market doesn't agree with this rally.

[00:25:12] But, you know, this is, if there's a place where I definitely missed was thinking that NVIDIA,

[00:25:18] after earnings, would lead everything higher.

[00:25:20] That did not happen.

[00:25:21] I was talking about how semi-vol was really cheap.

[00:25:25] Semis have done okay writ large, if we just bring up a quick chart of that.

[00:25:30] You know, since November OPEX, they're up a little bit, right?

[00:25:34] But they've clearly fallen behind the memes.

[00:25:37] And NVIDIA, as we mentioned before, which can't catch a bit.

[00:25:39] I mean, I'm not joking about that.

[00:25:41] You can see here from November OPEX, it's actually significantly lower.

[00:25:46] Amazon, you know, announced new chips.

[00:25:48] Google announced new chips.

[00:25:50] Quantum computing stuff.

[00:25:51] I don't really know.

[00:25:52] But that thunder was really stolen from the semis.

[00:25:55] So, even though I feel like we navigated how crazy tests could get,

[00:25:59] clearly NVIDIA and the semis were left behind.

[00:26:02] Yeah, I feel like every time I think I'm figuring stuff out,

[00:26:05] like I'm trying to figure out, like, what NVIDIA chips do

[00:26:07] and how everything works with AI.

[00:26:08] And then it's like, oh, now let's have quantum computing.

[00:26:11] So, now I got to figure out what that is, like, which I have no idea.

[00:26:13] I think that's very much a long-term thing.

[00:26:15] But it's just, yeah, it seems like things are moving at such a rapid pace

[00:26:18] that every day you've got, like, some new development here.

[00:26:20] Yeah, they really are.

[00:26:22] And I think that's tricky for investing in some respects.

[00:26:27] Then the other part of me is like, we'll just buy NASDAQ and forget about it.

[00:26:31] But then NASDAQ had to invite MicroStrategy into the NASDAQ 100.

[00:26:35] So, I question some things.

[00:26:38] But at any rate-

[00:26:38] They did add that, right?

[00:26:39] They did add it.

[00:26:41] This Friday gets added, which is just kind of funny because MicroStrategy,

[00:26:46] it-

[00:26:47] So, NASDAQ is not supposed to allow financial companies into the NASDAQ 100 index.

[00:26:53] They do have PayPal in there, as someone told me.

[00:26:55] But, you know, you think about why is MicroStrategy a, you know,

[00:26:58] billion, multi-billion dollar market cap?

[00:27:00] It's not because of its SaaS business, which is officially what their business is,

[00:27:04] is because of the financialization of the Bitcoin strategy,

[00:27:06] which maybe that's a good strategy.

[00:27:08] Maybe it's not.

[00:27:08] It's certainly doing well for the stock.

[00:27:09] But that seems like a financial strategy.

[00:27:12] But, you know, NASDAQ adds them in.

[00:27:16] And they don't have to add them in.

[00:27:17] That's just their choice.

[00:27:18] And SMCI was removed.

[00:27:20] SMCI is a chip name that was just added in June.

[00:27:23] So, SMCI lasted all six months on the NASDAQ 100.

[00:27:28] You know, it seems like the NASDAQ maybe is chasing memes a little bit,

[00:27:31] is what I'm trying to get at.

[00:27:32] And I think their strategy or their criteria are a little more quantitative than the S&P, right?

[00:27:37] They don't have the committee.

[00:27:38] So, it may lead to things like that.

[00:27:39] Because, yeah, you think about just adding SMCI, now already taking it out.

[00:27:42] And SMCI had some issues related to accounting.

[00:27:44] Yeah, it turned out to be a fraud.

[00:27:46] Yeah, it's embroiled in fraud.

[00:27:48] Right.

[00:27:48] So, S&P is more strict, I think.

[00:27:50] The NASDAQ has some market cap requirements.

[00:27:53] And I think after that, they're sort of like, you know, what's sexy?

[00:27:55] And what I think is funny about this is that,

[00:27:58] could you get more people buying the NASDAQ as micro strategies in it?

[00:28:01] Maybe.

[00:28:02] What is the other reason to add it in?

[00:28:04] I'm not entirely sure.

[00:28:06] But, you know, what do I know?

[00:28:15] Yeah.

[00:28:19] And here we had a risk on sentiment.

[00:28:21] If we got above 6,000, we clearly did.

[00:28:23] We moved up to 6,100 on this chart.

[00:28:25] Now we are risk off under 6,000.

[00:28:27] I'll show that because of the options complex, right?

[00:28:30] So, we're very neutral around 60, 55.

[00:28:32] We're risk on over 6,100.

[00:28:34] And we're risk off under 6,000.

[00:28:36] I'll show that again.

[00:28:36] But this general kind of stoplight picture, I think, helped us navigate pretty well through November into December.

[00:28:44] So, we're switching to our what has moved section here.

[00:28:47] And we're talking about what we know, which is volatility has certainly been crushed.

[00:28:51] Yeah.

[00:28:51] And these charts have all changed since I put this slide together.

[00:28:57] Vol was, you know, vol was really crushed.

[00:29:00] This continued.

[00:29:01] This is our view from November.

[00:29:02] November, now rated in the FMC, we're seeing vol pick up a little bit.

[00:29:05] But these vol levels and skew coming down, all these things, you know, this was all, this was a real theme into, you know, into this current period.

[00:29:16] And now we're starting to see volatility expand a little bit.

[00:29:18] In fact, if we just bring up the VIX index, you can see that we've now popped up to 1527.

[00:29:24] So, that's starting to get a little bit rich now.

[00:29:27] If we look at VIX and some of these other skew indices, they're lifting a little bit.

[00:29:31] And so, this we think is people starting to buy some downside protection, even though downside protection is not that expensive, right?

[00:29:40] The problem is, is that, I shouldn't say it's the problem, but what we see is the at-the-money volatility is very cheap.

[00:29:46] As we mentioned before, record low in today's zero DT options.

[00:29:50] But people are starting to buy a little bit out of the money puts.

[00:29:52] And so, that's messing with some of these skew metrics.

[00:29:57] Yeah, it was interesting.

[00:29:58] I saw Chris Cidial tweeted, I think like today, he was saying that he thinks 2025 might be a big year for volatility.

[00:30:04] And he's not one, although he runs a long vol strategy, he's not one to be like always saying he thinks it's going to be, you know, a big year for volatility.

[00:30:11] He's pretty back and forth or pretty straight about it.

[00:30:13] So, it was interesting.

[00:30:14] I thought that he thought 2025 might be a big year for volatility.

[00:30:17] Yeah, and I think that could be true.

[00:30:21] And that could be stock up, vol up, or even market down, you know, vol down.

[00:30:27] The memes that we were flagging with the Trump memes, Tesla, Bitcoin, Palantir, you know, this stuff remains to all be up quite a bit.

[00:30:35] This is some of the stuff we covered before.

[00:30:37] We also touched on this idea of correlation breaking.

[00:30:40] And I know I'm using a live chart here because I wanted to show some of these things.

[00:30:43] But here we're just talking about how, you know, Tesla and correlations are starting to break apart.

[00:30:50] And Jack, do you remember one of the big themes of 2024 early, you know, to mid 2024 was correlation just hitting all time lows, right?

[00:31:00] And in this case, we had one month correlation start to really just drop sharply into yesterday, right?

[00:31:09] So, if I made this chart, you know, yesterday, today's Tuesday, on a Monday, this was at a low.

[00:31:13] And now it's starting to lift a little bit.

[00:31:14] But what this is, is when you have names like just Apple, Microsoft, Tesla going up and everything else is going down, right?

[00:31:22] Correlation is falling apart.

[00:31:24] And generally what happens when the market crashes, correlation jumps.

[00:31:27] And when correlation jumps, that's usually associated with the VIX spiking as well, right?

[00:31:31] So, what I wanted to show was this chart.

[00:31:34] And we were talking, if you go back and listen to our podcast in July, we were talking about the number of extremes we were seeing.

[00:31:41] Remember, days without a 1% move, you know, correlation being low, call volumes at all times.

[00:31:48] There's all these metrics.

[00:31:49] And then what happened is in August, right, all that broke.

[00:31:53] Correlation jumped up, as you can see here.

[00:31:56] The VIX spiked to over 60 on Monday morning, August 5th.

[00:32:02] All of this stuff sort of repriced.

[00:32:04] And to me, a lot of what we're seeing right now looks like this period, right?

[00:32:10] It's not quite as crazy as we were, obviously, as you can see in this chart.

[00:32:14] But we also have a much bigger options expiration right now, which can kind of pull the pin.

[00:32:18] And look at this.

[00:32:20] This is, you know, you talk about the third Friday expiration.

[00:32:23] This is, you know, you pull that pin on Friday, July 19th.

[00:32:26] And then suddenly this is when everything starts to fall apart, right?

[00:32:30] So, this low is really, I mean, you could draw the line here of December options expiration, right?

[00:32:36] Where correlation is hitting a low right into that date.

[00:32:41] And we'll show another couple of these charts.

[00:32:43] I know I was kind of joking about the value charts a little bit.

[00:32:46] But not all stocks are performing anywhere near the same in this environment.

[00:32:51] Yeah, I was told we would get a repeat of 2020 when Trump won in the small cap value space.

[00:32:56] And I had not gotten that.

[00:32:59] So, that's one thing, part of the Trump trade that is not working my favor right now.

[00:33:01] Yeah, yeah.

[00:33:03] You're 100% right on that.

[00:33:05] And, you know, I don't know.

[00:33:08] I'm not going to pretend to understand what the Fed is going to do.

[00:33:10] And I'm not a macro guy.

[00:33:14] But 100% odds that we get a rate cut, right, tomorrow, I think, is pretty much what's being priced in.

[00:33:20] Excuse me, on Thursday.

[00:33:22] But now, do they cut again?

[00:33:25] You know, are the cuts off the table?

[00:33:26] Like, that part seems to be, there's more uncertainty around that part, the Ford guidance, as opposed to the last year where we all knew we were going to get more cuts.

[00:33:34] And so, it was like, okay, like, how many cuts are we going to get?

[00:33:36] And what's interesting is in 2021, if you remember, they said, hey, we're going to start raising rates, right, into that peak mania.

[00:33:44] And so, this is kind of interesting in that the rate paradigm may shift a little bit.

[00:33:48] And that's probably going to come at odds with whatever, you know, Trump is going to want to do during the inauguration if Powell starts to back off.

[00:33:54] So, it starts to become very murky to me, much more murky than we've had over this whole year, right, in the rate situation.

[00:34:00] Yeah, I mean, you have to, I'm also not an expert in macro, not anyone should listen to you.

[00:34:03] But you'd have to think they're going to cut here and they're going to guide towards, more towards a pause.

[00:34:07] Yeah.

[00:34:08] I mean, they usually, if they're not, if the odds are 100% that they're going to do something and they're not going to do something, they almost always leak something ahead of time.

[00:34:14] So, I would think they're not going to not cut because they haven't leaked anything.

[00:34:18] They would, you know, they'd have some governor say something that would indicate that they potentially might not cut.

[00:34:22] And they haven't done that.

[00:34:23] But it does seem like they're going to guide towards maybe slowing this thing down.

[00:34:26] Yeah.

[00:34:27] And that, to your point, the CME FedWatch tool, I think, is literally at 98%.

[00:34:33] And so, that cut is a given.

[00:34:35] The market's expecting that.

[00:34:36] And consequently, there's not a lot of volatility, that much volatility associated with this print.

[00:34:41] But the forward guidance, I think, could be really interesting because it, you know, it's a murkier, it's a more murky picture than we've had for sure from that standpoint.

[00:34:57] So, this is realized vol into December, where this is a snapshot from today.

[00:35:04] Realized vol measures how much we've moved, you know, on average over the last 30 days.

[00:35:08] And as you can see, this chart goes back to 2017.

[00:35:11] We're at this kind of lower bound, right?

[00:35:13] Realized vol, in other words, how much the market can move.

[00:35:15] We can grind to a little bit more of a halt, arguably, but not very much.

[00:35:19] So, we're at this lower bound in terms of how much movement the market hasn't been experiencing, specifically the S&P 500.

[00:35:26] So, from that perspective, we say vol is at lows.

[00:35:31] Now, vol can stay at lows for a fairly extended period of time, but the path of least resistance is higher, I argue.

[00:35:39] You need a catalyst for that.

[00:35:41] And the catalyst in this case is FOMC and all these expirations going away, and as well as the stretched valuations of a lot of these individual stocks.

[00:35:49] Which we can talk about in a second.

[00:35:51] So, we're at a floor in realized vol as we collide into these expirations and these FOMC period.

[00:35:56] And then we have this bullish exuberance, which is sort of like veiled volatility, right?

[00:36:03] A la Tesla, right?

[00:36:04] If Tesla is the big thing driving the market higher, you know, if that starts to reverse, you know, what happens to some of these different industries?

[00:36:13] If we had just, I'm just looking at this chart, this idea that we've had long periods of low realized vol followed by massive spikes.

[00:36:20] I mean, is that consistent with history or has that been happening more?

[00:36:22] It feels like it's been happening more in recent years, but I don't know if that's true or not.

[00:36:26] Yeah.

[00:36:26] I think that there, you know, there's a, like volatility, there's like some auto correlation or like a memory to volatility, I think, you know?

[00:36:34] And so, we just now started to print volatility metrics that were only seen at pre-COVID crash lows, right?

[00:36:42] And so, I think that, you know, in 2022, we set a new benchmark for what average volatility was.

[00:36:52] And we tend to see what happens is volatility hits a relative low and then it spikes.

[00:36:59] And so, the relative low in 2022, 2023, 2024 was higher, right?

[00:37:05] In other words, the lower bound in 2023 was, let's say, 15% realized vol, right?

[00:37:10] But the all-time lowest bound is 2017, where you can see we were realizing at 4% lower bound.

[00:37:18] So, the reason I bring that is because we keep setting regimes, different regimes a little bit.

[00:37:23] And the point is we get to that floor and I think we're approaching that floor now.

[00:37:28] It's like we compress, right?

[00:37:29] Because vol can't go any lower.

[00:37:31] And as soon as you get any little event that upsets that low vol paradigm, then suddenly short vol traders have to cover and then we get a vol spike, right?

[00:37:38] Right. So, it's sort of like, you know, if you push a balloon enough, it pops.

[00:37:44] And either you're going to have a ton of air in that balloon or you're going to have a little air, like you compress it enough, it's going to pop.

[00:37:48] And that's kind of like, you know, I think what we see here where, okay, like, well, just how hard do we have to squeeze this balloon to pop?

[00:37:56] We feel very much at that level.

[00:37:58] And then when vol pops, it moves straight up, right?

[00:38:00] It doesn't gently kind of glide higher typically.

[00:38:03] Usually, you get like an event or a position shift that causes a jump in volatility.

[00:38:08] So, the challenge is always the timing, right?

[00:38:10] I was thinking back to 2017.

[00:38:11] Like, it was just everyone was saying this can't go on, this can't go on, this can't go on.

[00:38:14] And then, you know, in early 2018, you get the event that finally breaks it.

[00:38:18] Yeah, that's exactly right.

[00:38:19] And in 2021, it was interesting because, you know, we print at the high of the January of 2022.

[00:38:27] So, 2020 was so bullish, we print the high of the day, I think, on the first session of the day.

[00:38:31] And then we just went straight down, right?

[00:38:34] Violently down.

[00:38:35] And actually, the VIX high was made on OPEX day, even though we had the Russia officially evade Ukraine at the early February, right?

[00:38:43] So, the timing is always interesting because there is the kind of known unknowns, you know, like a war or another event that we think can trigger vol.

[00:38:52] And then there's just these position shifts, which I think can also really change, you know, what is needed to spark volatility.

[00:38:59] In other words, right now, if we had a big headline come across, a negative headline,

[00:39:04] that negative headline has all of this positive game of padding, which could absorb a lot of the kind of anxiety around a bad headline, right?

[00:39:11] Like a drone attack in New Jersey or something, right?

[00:39:14] But if we lose all this positioning, then if we get a bad headline, we could see a lot more volatility related to that, right?

[00:39:20] So, it's the positioning combined with the event that has to kind of line up to really let things go over.

[00:39:26] And that reminds me a lot of COVID because COVID, we had bad headlines for a long time before we had any movement related to those bad headlines.

[00:39:31] A hundred percent. Everyone was sitting there thinking, this doesn't make sense, this doesn't make sense.

[00:39:35] And then suddenly the position shifted.

[00:39:37] And, you know, I think there was like a couple of bad videos out of China.

[00:39:40] And suddenly those videos mattered, right?

[00:39:43] And that could be the kind of thing that is happening here.

[00:39:49] This chart is from Goldman Sachs, and it's the seasonality, right?

[00:39:54] And so, this period into December options expiration, kind of what we're talking about right now is historically weak, as you can see on this chart.

[00:40:01] And then the end of the year, the last week is really bullish.

[00:40:04] Now, this chart is the seasonality from December or from 2000, excuse me, 1928 to today.

[00:40:11] I would contend that the JPMorgan collar strike, which is really big, you know, it's only been around maybe the last two years.

[00:40:19] And if you look at the history of that strike, we traded well above it in two of the last four years.

[00:40:24] And we pinned the strike into the end of the year, I think, in 2023.

[00:40:28] So, the proximity to the collar matters.

[00:40:30] And the reason I bring this up is because even though the seasonality is very bullish, I think equities maybe could have a bullish move, you could argue.

[00:40:37] But I still think the S&P is likely to pin that 60-55 strike because of that big gamma.

[00:40:42] And so, we have this interesting bullish end of the year paradigm.

[00:40:46] And the reason I post this chart is because let's say Powell doesn't say something too hawkish.

[00:40:53] And then I think we just pin 60-55 because of this big JPMorgan strike, which suggests that if you want to be bullish of equities because of seasonality,

[00:41:00] then you should look to maybe owning MAG7s as opposed to the S&P 500.

[00:41:05] Yeah, it's interesting.

[00:41:06] I didn't know there was like a seasonal dip mid-December.

[00:41:08] I figured the chart would be more like straight up during the December period.

[00:41:12] I didn't realize that dip existed.

[00:41:13] Yeah.

[00:41:14] And in the modern options, age, which is at best the last 20 years, how much does that really factor into this chart, which goes from 1928 to today?

[00:41:23] So, I guess the argument here is that there's something outside of the options complex that historically drives these flows.

[00:41:30] This is the past of investing.

[00:41:32] Gurus can maybe figure this out.

[00:41:34] People's 401Ks going to the market or whatever it is.

[00:41:36] I don't know.

[00:41:37] But in the modern options complex, I think that there's a bunch bigger effect, certainly the last few years than what you've seen in the previous 100 years.

[00:41:47] Okay.

[00:41:48] So, this next slide, you're talking about this idea of this collared idea you've been talking about.

[00:41:51] Yeah.

[00:41:52] So, end of September, right, we had FOMC and we were at 5,700.

[00:41:59] S&P moves up and it pins.

[00:42:02] And I mean, it really pinned, 5750 until the day of options expiration.

[00:42:06] That's 930, the quarterly expiration.

[00:42:08] That's where the JP Morgan collar for that quarter expired at 5750.

[00:42:13] And then you can see the S&P immediately starts to move.

[00:42:15] And so, in this case, we have FOMC again and then this 45,000 lot of calls that expire at the quarterly options expiration.

[00:42:21] That's December 31st at 6055.

[00:42:24] And so, you know, when you think about this end of year rally and you think about seasonals or whatever it's going, like all of that is going to be weighted against whatever's happening in the options market.

[00:42:34] And so, you know, you can have literally billions of dollars of hedging flow dedicated on pinning that 6055.

[00:42:40] And so, I bring this up for a few reasons.

[00:42:42] If Powell's really hawkish and we break 6,000 before kind of DeSopex, like it's really bad, then I think the collar's a non-event.

[00:42:49] If he's super dovish and the market rallies and we break 6,100 before that last week of December, then maybe we can get some of the seasonality.

[00:42:57] But if we're within 1% of 6055 that week into the, you know, 1231 expiration, then I think that that game is actually going to dominate the S&P 500 and just pin us.

[00:43:09] And so, the other thing that's interesting about that is once that pin is pulled, then what should tether us to this general area again, right?

[00:43:16] So, we can have a situation where Powell actually says some kind of hawkish, you know, has a little bit of a hawkish tilt, but the market doesn't react that much.

[00:43:23] And then people are like, well, why is the market kind of pinning?

[00:43:25] And I don't know, I'm going to eat like my, you know, holiday cake or something and forget about it.

[00:43:31] And then, you know, we pay the piper maybe in January, right?

[00:43:34] Because we lose that pinning support that is so strong in the market right now.

[00:43:38] Yeah. So, it's kind of like your COVID analogy.

[00:43:41] Why doesn't this matter? Why doesn't this matter?

[00:43:43] Opex hits and then bam, it matters, right?

[00:43:46] So, I know I have a very bearish tilt to the way that I'm kind of presenting things here.

[00:43:52] But, you know, lesson one for me is that we'll probably lose this pin, right?

[00:43:57] We'll move up or move down.

[00:43:58] But I think because of stretch vols and cheap realized vols and a lot of those reasons, I think that the path of least resistance could well be lower.

[00:44:05] So, you know, take that lens.

[00:44:09] The pinning lens is kind of the first principle.

[00:44:12] And the other thing that's important, as you mentioned earlier, is you're really looking at like a 30-day window.

[00:44:16] Yes.

[00:44:16] You're talking about things like this with these Opexes.

[00:44:18] You're not talking about what might happen a year from now.

[00:44:20] You're really in a focused window here.

[00:44:22] That's 100% right.

[00:44:24] And so, it's the same point with me flagging the Jan opposite expiration, right?

[00:44:29] Because, like in my mind, it's we lose the pin here.

[00:44:32] There's a ton of call values that are going to decay in January.

[00:44:35] Potentially, you know, vol could, you know, normalize, right, and jump.

[00:44:41] And all that times into end of January.

[00:44:44] And then maybe Powell's forced by Trump to cut rates again.

[00:44:47] And who knows, right?

[00:44:48] A lot could happen in that end of Jan time frame.

[00:44:51] Or none of that, we have a bunch of earnings starting again.

[00:44:53] So, you know, I see this window as a window for a certain correction to take place and for values to sort of normalize.

[00:45:02] And it's interesting because different types of investors can look at that in different ways.

[00:45:05] So, for instance, people who are traders, like you, can look at that 30-day window and say,

[00:45:10] there's an opportunity to profit if I'm right in that 30-day window.

[00:45:13] People like me can look at it and say, I'm going to see a bunch of crazy stuff going on in the market.

[00:45:17] Like, this helps me understand it.

[00:45:18] This helps me better stick to my plan because I might realize, you know, this thing is related to short-term options.

[00:45:24] Whatever I'm seeing, it might not be some long-term fundamental thing.

[00:45:27] So, I think, you know, whether you're a trader or an investor, you can still benefit from understanding this stuff whether you use it or not.

[00:45:32] Yeah.

[00:45:32] And there are times where there are long-term, you know, pivots made in the market, right, and churns.

[00:45:38] And so, you know, typically that's during a major crash where there's extreme put values and that was driving a lot of the volatility.

[00:45:45] And if you can identify, hey, all these puts are going to expire, that could time with market bottoms.

[00:45:49] You know, as a value investor, those are potentially good times to buy dips.

[00:45:52] But in this case, you know, if you own Tesla and you've been fortunate enough to ride this whole thing and you look at how crazy the call values are and how stretched these things are, it starts to make sense to say, hey, let's override our position, for example.

[00:46:06] Or, hey, we've had a great year in tax loss efficiency and, you know, there's all these other signs that we could be at a short-term high.

[00:46:12] So, you know, to your point, I generally have a 30-day view of things, but sometimes those 30-day views line up with major cycle highs and lows.

[00:46:21] Yeah, and going back to Tesla, that's kind of the curse of a value investor is like if I did own Tesla, which I don't, I wouldn't own it right now because like when it goes up 20%, 30% as a value investor, you're like, oh, that's great.

[00:46:30] Yeah.

[00:46:30] Like time to sell, time to take some profits.

[00:46:32] Like it's very hard to hold these things when they, you know, double in whatever it did, you know, a month plus.

[00:46:36] Yeah, and, you know, you do these things for long enough.

[00:46:42] You and I are about the same age, so we've seen a lot of cycles.

[00:46:45] And that's a good segue into this period, this sentiment check that I want to do.

[00:46:50] But before I move to that idea and the Tesla going crazy is this is from Alpha Exchange.

[00:46:56] They do a great options-based podcast.

[00:46:58] And so, you know, I stole this chart from them.

[00:47:01] And they put up this chart here, which is 12-month correlation versus realized vol.

[00:47:08] And their basically point here is that, you know, the vol is high and the correlation is sort of low.

[00:47:12] And, you know, this is one of these extreme data points, right?

[00:47:16] Normally, you would not expect us to have, we would have a little bit of a higher vol given the amount of correlation.

[00:47:22] And so, they kind of looked at previous times where we had similar market environments here.

[00:47:29] And what you basically see is, and this is the part that I really wanted to flag for people, is that, you know, December 2006 was a real market low, right?

[00:47:37] Right before the major crash in, you know, 7.

[00:47:41] And the same thing with, you know, December 2017 was another, you know, major market low.

[00:47:47] We had vol again in January.

[00:47:51] But you look at one-month put premium here, and it's marginally higher than those two periods of real calm.

[00:47:57] And three-month put options to hedge your portfolio, it's a 2% premium, which, you know, times with these historically very, very quiet, very, very calm periods in the market.

[00:48:07] And so, the other point here is that, you know, as value investors or longer-term investors and you go, hey, we've had an incredible run here, I can hedge my portfolio for really cheap.

[00:48:18] And not only can I hedge it for really cheap, I've been fortunate enough to probably have a lot of gains over the last six weeks or four weeks since Trump took office, or not took office, but was elected, right?

[00:48:28] Right. So, the cost to hedge your portfolio is also now very cheap.

[00:48:32] So, maybe Brent is totally wrong that we're going to have a reversal in the market around December options expiration.

[00:48:38] But the cost of hedging that bet is very cheap right now.

[00:48:42] You're talking about 12% implied volatility for, you know, one-to-three-month puts in the S&P 500.

[00:48:46] That's about as cheap as it tends to get.

[00:48:50] Yeah. So, moving on to the sentiment check, we're back to this idea of the collar.

[00:48:54] Yeah. And so, you know, I'm not a macro guy. I'm not a fundamental guy either.

[00:49:01] But this is the highest Apple valuation ever at 10 times sales.

[00:49:08] That seems, you know, this chart certainly makes it seem pretty extreme, extreme things.

[00:49:12] I love, by the way, that you had a valuation chart.

[00:49:14] That might be our first valuation chart we've ever had in the office.

[00:49:18] It's probably going to be the last.

[00:49:18] I like the direction you're going here.

[00:49:20] It's probably going to be my last as well.

[00:49:23] But to the point of the collar stuff is that we have all these big options positions, which in this case, it's a lot of Apple long calls into the 250 strike.

[00:49:32] Right. Those are all now going to expire.

[00:49:34] They're going to go away.

[00:49:35] These S&P supportive positions are all going to go away.

[00:49:38] They're going to expire.

[00:49:40] You know, Peterfee is interesting because you could argue that he was a big reason that the GameStop, you know, Mean Mania popped.

[00:49:51] The bubble popped there because they stopped taking delivery or whatever it was.

[00:49:55] He's the chairman of Interactive Brokers?

[00:49:56] He's the chairman of Interactive Brokers.

[00:49:58] And he basically said that their margin loans are up by a ton.

[00:50:01] And to him, that meant that this thing was kind of overextended, meaning equity prices.

[00:50:06] You know, this is not a guy who is extreme in nature.

[00:50:10] And I think when he says something like this, it's pretty interesting.

[00:50:12] Again, because if he's starting to look at this, then you go, well, if this starts to get more extreme and they start to change margin rates or things like that, well, those are the kinds of things that really hurt equity investors.

[00:50:23] Right. Why didn't GameStop get taken down is because they stopped letting you buy it on the platforms.

[00:50:27] Right. So, you know, these are the kind of interesting things that happen where positioning starts to get so extreme that you go, how much longer can this last?

[00:50:35] Well, I'm going to tell you if they start to raise margin rates, that'll probably be one, you know, you know, one swipe against the bullishness.

[00:50:43] I read this, which, you know, in 2006, I was telling somebody else this.

[00:50:50] I worked at a bank and I was like, hey, I'm doing I'm doing pretty well relative to my friends.

[00:50:53] We had just graduated college. But I had this one friend who dropped out and he had an escalator.

[00:50:58] I'm like, how did you get this this car?

[00:51:00] And he's like doing real estate transactions in Scottsdale, Arizona at the time.

[00:51:05] And so it's like, oh, man, like I missed that one. And then GameStop was the same thing.

[00:51:10] It's like, I'm going to take my, you know, my mortgage and I'm going to put in a GameStop or I'm going to put into Ethereum five, 10 years ago or something.

[00:51:16] And the point is, is that what this tweet says, for those of you who are just listening to this, is that this guy bought a $80,000 Bronco for his high school kid, apparently, which in and of itself is just I don't have any comments on that.

[00:51:29] But he basically said, I'm going to take the zero down 49 percent APR for 60 months and I'm going to take that cash instead.

[00:51:35] I'm going to put it into Bitcoin. And a lot of these people are saying micro strategy and their thing because they're guaranteed to go up.

[00:51:44] And so there was so much of this over this weekend with micro strategy and just Bitcoin in general that to me, when you start to lever up your bet, that is where a lot of problems are invoked.

[00:51:56] Right. That's what created the housing crisis. That's what, you know, ripped people off in a major way in previous bubbles.

[00:52:02] And so you're seeing all these kinds of things.

[00:52:05] You know, he literally calls this cheap debt because when you pay it off in Bitcoin terms, he'll be paying it back for pennies on the dollar, which is just, you know, it's just wild.

[00:52:14] The sentiment is just wild.

[00:52:16] Yeah. I mean, I've been completely wrong about this whole micro strategy and Bitcoin thing.

[00:52:19] But you also have to say when people like don't think there's anything that could potentially go wrong with like volatile assets like this.

[00:52:25] And I'm not an expert at what, you know, Saylor is doing in terms of issuing convertibles or whatever he's doing to buy more Bitcoin.

[00:52:30] I mean, it just seems like at some point that has a bad ending.

[00:52:33] A hundred percent.

[00:52:34] But again, but again, that could be, you know, I could be wrong for the 12 months, you know, or whatever.

[00:52:38] It could go on for a really long time and Bitcoin could hit levels that are unimaginable or something in the process of doing it, which is why you can't do anything about that.

[00:52:45] But it does seem like that will eventually not work out for him.

[00:52:48] Yeah. Particularly with micro strategy.

[00:52:49] And that's where I really have a problem with it as opposed to Bitcoin.

[00:52:52] I mean, Bitcoin could do nothing for the next five years and OK, great.

[00:52:55] He'll sell some Bitcoin and pay off his daughter's depreciating asset or whatever.

[00:52:59] But micro strategy, you know, this BTC yield thing.

[00:53:04] Well, why can't some other company?

[00:53:06] So if micro strategy is at three to four X times its Bitcoin holdings, why can't some other company just who has a one X Bitcoin valuation start doing the same thing and people just go buy that instead?

[00:53:19] The other thing is, from my perspective, is micro strategy keeps selling these convertible bonds.

[00:53:23] And the way that you hedge these convertible bonds is by selling stock or selling calls.

[00:53:27] And that's positive gamma, which just sort of like drops the volatility out of the stock.

[00:53:32] So, you know, there's all these interesting, you know, like here, I'll show you an example of that.

[00:53:38] Right.

[00:53:38] I mean, this thing should be the most volatile stock in existence.

[00:53:41] Right.

[00:53:41] It certainly was into this period.

[00:53:43] But look what's happened here.

[00:53:45] We've just pinned 400 over the last month.

[00:53:47] Right.

[00:53:48] And if you look at where the biggest positions are in the OpEx, well, half of the gamma in micro strategy as a whole is going to expire.

[00:53:53] And most of that is tied to the 400 strike.

[00:53:55] So, you know, this thing, as it gets more financialized with these converts and as Wall Street starts to pay more attention to this thing, I think it issued more convertible bonds than anybody else.

[00:54:05] It starts to become a professional institutional game.

[00:54:08] Right.

[00:54:09] It's not Wall Street, kind of like GameStop.

[00:54:11] And when those Vols got to 400, guess who comes and plays in that sandbox?

[00:54:14] Well, like the French quads and stuff, not really, you know, Johnny retail driving this thing anymore.

[00:54:19] And I think that's kind of like what I see here with micro strategy as well.

[00:54:24] So the Vol could come down out of this thing irrespective of my world is such a weird thing because like the value of whatever this company does, like it's a SaaS company or whatever it is, is such a small percentage of its market cap.

[00:54:35] I mean, I would guess most people that own it don't even know what it does, like can't even explain what the business is.

[00:54:40] So like it's become this Bitcoin proxy, but not a Bitcoin proxy, like trading at a significant, significant premium to Bitcoin.

[00:54:47] So it's just like, it's just, I don't know.

[00:54:49] It's like for, it's probably beyond my ability to analyze, but it just doesn't seem like the greatest setup for, you know, great long-term returns.

[00:54:55] Yeah.

[00:54:56] And you have these levered products on it, you know, much like we saw with NVIDIA and Tesla, there's 2X and 3X, you know, MSTR.

[00:55:03] And, you know, it is a cult.

[00:55:04] And the thing about it is you go, okay, well, Bitcoin could stay at 100,000, maybe even go up, even goes down to 90,000.

[00:55:11] And it can just, you know, can have these periods where not a whole lot happens and that doesn't have necessarily anything to do with MicroStrategy, right?

[00:55:17] If Bitcoin doubles, then I guess that's good for MicroStrategy to have all these Bitcoins, right?

[00:55:21] But if nothing happens, then you start to get, I think there's a big decay function in MSTR where you go from being worth four times your Bitcoin holdings to just maybe two times your Bitcoin holdings.

[00:55:32] Either way, your cheap debt that you thought you were paying off on your car because you own MicroStrategy, you know, could get very expensive, very quick, right?

[00:55:39] So, you know, this cult of stuff around MicroStrategy itself is where I have a real problem as opposed to saying, hey, I don't like fiat, I want to own Bitcoin.

[00:55:49] Like, that to me is a slightly different trade than saying I'm going all in on MicroStrategy because Wall Street doesn't understand.

[00:55:55] I guarantee you Wall Street understands better than the average guy on Fintwit, right?

[00:56:00] And, you know, and I think that when you start to get values this big and like smart funds can start to play in the sandbox because there's enough notional value swinging around in there and it means something to their portfolios to strike up all sorts of interesting trades.

[00:56:13] I guarantee you they come into this thing.

[00:56:15] And if you look at how much options volume is trading in this thing notionally, it's not one of the top 10 names in the options market.

[00:56:21] So there's clearly a lot of serious size going on there, you know, that suggests that there's big fish swimming in this pond.

[00:56:30] Yeah, it was funny.

[00:56:31] Before we close this up, we asked Cliff Aspeness when he was on Excess Returns about this whole thing.

[00:56:34] And he had a great answer.

[00:56:35] Like, he was like, first, you got to tip your hat to the guy.

[00:56:37] I mean, the money's in his bank account.

[00:56:39] So he can't, I mean, it worked, you know, it worked a lot better than what I'm doing.

[00:56:42] But by the same token, like as an investor, you have to say, what lessons can I take from this?

[00:56:46] And the lessons shouldn't be I should do exactly what he did.

[00:56:49] Because going forward, you know, this may work out a little differently than it has in the past.

[00:56:53] Yeah, well, look at the chart here.

[00:56:55] February of 2021, when Bitcoin hit whatever it was, $40,000 the first time or whatever, the stock went to $100, right?

[00:57:02] And then it traded down to $0.14, you know, cents or $14, right?

[00:57:07] And it stayed there for four or five years.

[00:57:10] The guy stuck with the strategy.

[00:57:12] So Michael Saylor, I'm not saying is an idiot at all.

[00:57:16] But the sentiment has gotten to be bananas.

[00:57:18] And that's what I'm saying.

[00:57:19] And so, yes, it's doing really well.

[00:57:21] But what happens if Bitcoin goes down to $75,000?

[00:57:24] Like this thing is going to get wrecked.

[00:57:25] And if you took a mortgage out to buy MicroStrategy on your house and you think it's going to be cheap debt, well, I got news for you.

[00:57:31] Like you're going to be upset that you made that trade.

[00:57:34] So, you know, this is just, again, the type, if you read this thread, it's just bananas.

[00:57:39] And I also know that we're getting to some point because when people start getting angry with me for saying this is all getting a little crazy, you know, that's another signal.

[00:57:50] I remember trying to talk to GameStop people and saying, like, you know, be careful here.

[00:57:54] Vols at 400%.

[00:57:55] Like you've done incredibly well, you know, and they would just – I was called a boomer, which was interesting.

[00:58:01] Well, it's very hard.

[00:58:02] When you're in that world, like where you're seeing those kind of returns and you're actually seeing them in your account, it's so hard to sell.

[00:58:08] Like it's so hard to – you just believe that it's going to keep going and going and going forever.

[00:58:13] Until you see evidence otherwise, you won't believe anything else.

[00:58:16] And unfortunately, sometimes after you see the evidence otherwise, it's a little bit too late.

[00:58:19] Yeah, and I think holding the stock because you've owned it for a long time, again, it's another – it's a different thing.

[00:58:23] Like I'm up 500%.

[00:58:24] I want to let it roll.

[00:58:25] Like, okay.

[00:58:26] But then you're going to mortgage your house to go and buy more.

[00:58:28] Like that's a whole different trade and a whole different animal, right?

[00:58:31] And I think that we're kind of at that point.

[00:58:34] And then the last thing –

[00:58:36] Yeah, you got to take the knife, Brent.

[00:58:38] There's two last –

[00:58:39] Twist it a little bit here.

[00:58:40] Yeah, there's two last –

[00:58:41] The value chart as we wrap up here.

[00:58:43] This is the IBE value shares ETF.

[00:58:46] It trades only a fraction of what MicroStrategy trades.

[00:58:51] But it's down –

[00:58:52] Well, if you flipped it, it would look like MicroStrategy.

[00:58:54] You put it in the other direction.

[00:58:56] It's down 10 days in a row, which I have another numero chart which you just added.

[00:59:02] But this is from BarChart.

[00:59:03] This is the longest losing streak in history, they said.

[00:59:07] I wanted to show you this chart, Jack, which is RSP.

[00:59:11] This is the equal-weighted S&P 500 ETF.

[00:59:16] I mean, that is the polar opposite to what you get from the NASDAQ, right?

[00:59:20] I mean, they literally look like crocodile jaws now because NASDAQ has gone up every day since the month started.

[00:59:26] But the RSP is now negative on the month.

[00:59:28] So, this market rally is only in a handful of names, right?

[00:59:34] MAG 7s, then you get MicroStrategy and Tesla.

[00:59:39] Everything else is really struggling.

[00:59:41] And I don't know if this is the market sniffing out a change in rates or – I really don't know.

[00:59:45] But the point is that the underbelly of the market is really starting to fall apart.

[00:59:51] Now, that could be, hey, Brent, this is just a correction, right, and everything else, and we're going to resume the rally.

[00:59:56] I suppose that's possible, but my issue with it is that when you look at the implied vols of the stuff that is most stretched a la Tesla, it can't really go up.

[01:00:07] I mean, the stock can continue to go up, of course, but realistically, the implied vol is getting so high.

[01:00:13] The IV rank in Tesla, for example, is 80%.

[01:00:15] That's with the stock going up.

[01:00:17] So, stock up, vol up – like, you're starting to get unprecedented moves now at a real extreme.

[01:00:22] So, you know, this just, to me, is a real bad look.

[01:00:27] And so, you know, when you look at – this just came out from Nomura – negative breadth in the S&P 500 has hit 11%.

[01:00:35] That's unprecedented since – I think that's late 2021, which I think is – then you're starting to start talking about the internet bubble, right?

[01:00:42] And the other thing that's so interesting about this is that when you look at the S&P move during that timeframe,

[01:00:47] the only time we've had breadth this bad in the S&P, it's all related to giant moves lower in the market.

[01:00:53] This is the only time in the last 20 years, 25 years, that we've had negative breadth and the S&P 500 is up – it's the only time it's been up.

[01:01:03] It's up 80 bips over this timeframe, right, over this 11-day period.

[01:01:09] That is really weird stuff, right?

[01:01:12] This does not make any sense at all.

[01:01:14] And to this chart, we spent so much time talking about what NVIDIA was doing to the S&P 500 earlier this year.

[01:01:20] Well, this is the same thing, right?

[01:01:22] Avgo, Tesla, all these names are pushing the market up, a handful of names.

[01:01:26] But all – and maybe the rest of the names catch up because of the Trump trade or something.

[01:01:30] But this is a real – these are some real anomalies.

[01:01:33] And I'm arguing here that the leadership is getting expensive when I look at it through these options lenses,

[01:01:41] which to me says that they need to catch down as opposed to the rest of the market starting to catch up.

[01:01:47] Yeah, it's really weird to see NVIDIA not being the stock that's keeping the S&P 500 up,

[01:01:50] which is the total opposite of what we saw earlier today.

[01:01:52] 100 percent.

[01:01:53] And I don't know, like, to the point earlier, like, Google's got new chips and Amazon's got –

[01:01:56] so maybe it's just these other companies are eating their lunch and that's a rotation.

[01:02:00] That seems to be what's happening here, right?

[01:02:02] And maybe NVIDIA catches a –

[01:02:04] There's some China with, like, an antitrust thing or something, I think.

[01:02:06] There's some sort of other story related to that.

[01:02:08] There's tariffs in there.

[01:02:09] I mean, you know, there's a whole bunch of different things that I suppose you could use to explain this.

[01:02:14] But we are, again, hitting these weird, unprecedented territories, right?

[01:02:18] This is all the things that was happening over the summer and all these different anomalies.

[01:02:23] And so, you know, if there is just a little shake in the volatility space,

[01:02:27] because we are at this lower bound in volatility,

[01:02:30] because we're going to lose a lot of these pinning positions,

[01:02:32] I think it's very easy for the rest of the market to kind of catch down, right?

[01:02:35] These leading names to catch down as opposed to the rest of the market catch up to the craziness of Tesla, right?

[01:02:44] I mean, you know, just to document how wild this is,

[01:02:50] you know, when we look at this and we look at Tesla,

[01:02:57] and I'm sure we're kind of like spot game of a platform here,

[01:02:59] but it is usually the only time you see significant implied volatility spikes is when the market crashes, right?

[01:03:07] And so right now we have an 81% implied volatility rank,

[01:03:10] and that is simply because Tesla is doing this, right?

[01:03:12] It's up, as you can see here, 90% since the election.

[01:03:19] I don't know the fundamentals of Tesla.

[01:03:21] I understand it's really bullish for them.

[01:03:23] My argument here is that the entire most rosy picture for Tesla probably shouldn't be pulled forward

[01:03:29] into the first two weeks of the election period, right?

[01:03:33] It just seems very stretched.

[01:03:34] And this implied vol at 81% IV rank, you know, skew up in the 90s here.

[01:03:41] Like, this all just screams like, you know, too much, too much, right?

[01:03:45] And I think this op-ex positioning is when a lot of us could reset.

[01:03:50] That's probably a good note to wrap up on.

[01:03:51] I'm just going to say that when value does come storming back someday in the future,

[01:03:55] I expect a chart in the presentation with a massive up-moving downhead.

[01:03:59] I'm going to counteract this bad karma you give me here.

[01:04:01] I think the day that we see value ETF vol up, value stocks up, will be probably our last.

[01:04:08] We'll conclude this op-ex series on that date.

[01:04:11] That'll be the end of it.

[01:04:12] We'll just cut it right there if you like we're out.

[01:04:15] Yeah.

[01:04:15] Yeah.

[01:04:16] So, you know, it'll be definitely an interesting period.

[01:04:19] There's a lot of control in the options market here.

[01:04:21] And again, I think my takeaway on this whole thing is if we break 6,000, then the downside

[01:04:26] thesis is on.

[01:04:27] And I think we have a pretty significant correction.

[01:04:30] If we hold above that level, you know, then that's the sign that it's just business as usual.

[01:04:36] So that's what we'll be watching at the end of the year.

[01:04:39] The January op-ex will be certainly very fascinating in either case.

[01:04:42] And so I'm really looking forward to our next installment in 2025.

[01:04:47] Yeah.

[01:04:47] Thank you, everybody, for joining us.

[01:04:48] We'll see you next time.

[01:04:49] This is Justin again.

[01:04:50] Thanks so much for tuning into this episode.

[01:04:52] If you found this discussion interesting and valuable, please subscribe in either iTunes

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[01:04:59] We appreciate it.

[01:05:00] The opinions expressed in this podcast do not necessarily reflect the opinions of Alivia Capital.

[01:05:04] No information on this podcast should be construed as investment advice.

[01:05:07] Securities discussed in the podcast may be holdings of clients of Alivia Capital.