The Nvidia Conundrum | The OPEX Effect | March 2024

[00:00:00] Welcome to The OPEX Effect, a joint podcast from Excess Returns in Spock Gama where we take a deep dive into the world of options and the flows to generate in the markets. Join Brent Kochuba and Jack Forehand every month on Options, Exploration Week as they look at the major developments in the options world and how they impact all of our portfolios.

[00:00:30] It's an incredible feedback loop where the higher prices just draw more people in and onwards and upwards is just the path of things these days.

[00:00:41] So this time, Brent and I are just going to talk about you found chances in the NCAA tournament because this turning point stuff is all of these all the way at the time so we're just going to skip the options.

[00:00:50] I mean, the YouTube's engagement staff will probably go down. I would assume with us not talking about options but I think it was go that way this time.

[00:00:56] I'm optimistic for the first time in a while.

[00:00:59] I am too. Last year kind of came out of nowhere, but this year there are solid teams so hopefully it keeps going.

[00:01:05] We're not actually going to do that.

[00:01:09] As we get into the option stuff for people who haven't seen our previous episodes, we always like to talk about the options cycle and how it works first.

[00:01:16] So can you just go through you've got a great slide here on the opx cycle, can you just talk about how it works?

[00:01:20] So the way that we look at the options market in positions and the way it impacts the market is on a cycle and for general purposes, we look at it on a 12 month cycle on the third Friday, every month is an options exploration or big options exploration.

[00:01:33] And so typically the way that we look at it is after that third Friday exploration, positions start building on the next third Friday exploration that builds up hedges that are associated with those positions and then those positions build and we kind of hit maximum impacts the week before expiration, which would be this week.

[00:01:52] And then in positions expire and we start the cycle again, there's a larger cycle there tied the quarterly extra expirations as well, which is obviously marches a quarter of the expirations.

[00:02:02] We think those positions are a little more large and meaningful.

[00:02:06] And if you look at this chart, each red X is an individual expiration list is every monthly expiration and there are these times where the positions grow to be very large in size.

[00:02:16] And we think that the associated positions hedging positions related those options are larger as well. So, you know, we always talk about March of 2020 where the low of the market was a day after options exploration, you could look at June of 2022.

[00:02:31] And I think it was September of last year where oftentimes it's these big put positions that expire and then the market will rally after that.

[00:02:38] And occasionally we see really large call positions build up as well. And when those expire, we see short-term weakness in the market. And I have some stats to talk about this later in the presentation.

[00:02:51] Yeah, on this next slide you talk about the zone. This is something we've talked about a lot is where you know position sort of dilded up in these specific zones and it's a different zone every time. Obviously because the market's moving around, but can you just talk about what you're seeing like in this 5,152 range.

[00:03:04] Absolutely, there's a cadence the way that positions build and this is the SPX but it overlaps with the spiders and a lot of people kind of wave their hand at the size of spider positions because I think it's retail oriented and there is a lot of retail flow there, but the positions can be very large.

[00:03:19] When you look at the hedging flows associated with those notionally they can be the same size. So when you look at 5,100 SPX to 5,200 SPX, you could see the size of call gamma here orange and put gamma in blue and you'll notice there's three big bars it's 5,100, 5,150 and 5,200 this does not show the equivalent positions at spider so you know 510 515 520.

[00:03:42] And what happens in relation to that cycle we were talking about the gamma at these strikes grows and the gamma notional which is more plotted here.

[00:03:52] In theory is related to the size of hedging flows that work around these positions so shares being bought and sold or futures being bought and sold and what you tend to find is and again we'll talk about this in the later slide here is that the expiration

[00:04:08] tends to unlock new levels in the S&P 500 and you'll see some evidence for that shortly. And it's because I think these big positions that grow at these strikes they get erased and that allows the markets to kind of untether from these areas and move away.

[00:04:23] And last I would just know you see that 5,000 striped to the downside a lot of positions tied there are a lot of spread positions actually funding trees there but there's a lot of activity that is at that strike as well.

[00:04:35] And so again we're approaching March 15th a good 30 to 40% of this the strikes size that these strikes here is going to be wiped away on Friday and again that should mean that the positions on or that the market untether from this area and we shift either higher or lower to be determined.

[00:04:52] Two questions on this what should I think about the balance of this and they seem to be pretty balanced the lines other than the one way at the top which seems to be more you know a lot longer on the top line like is there anything I should take from that.

[00:05:02] Yeah I think it has to do with how people add positions in the indexes and so typically we model that generally traders along stock you know I have a form okay you probably have one or whatever it may be we're all long stocks and there's a lot of call overriding this is huge topic of conversation now the structured call overriding funds for example.

[00:05:22] And what happens is the market moves up a little bit traders tend to sell calls into that or let's just say you buy some out of the money call for the point is your trading calls at strikes that are above where the market is trading so 5200 you'll notice is purely that's our call while level which is purely call positions it's only an orange bar there's no blue there and that's because the market moves up its call activity trading slightly out of the money call activity and that builds up overhead again we think here that this is this happens to me mainly call selling.

[00:05:52] And then what happens is on the short dated basis you know like.

[00:05:56] This week people sell the Friday option for example they'll sell puts below so we're almost at 5200 on Friday we rejected that level came down rather violently and then people started to sell puts below at 51 50 or at 5100 and that adds to the put gamma that those blue bars that you see below and so generally speaking we think the larger these positions are.

[00:06:19] And the more neutral they are the more kind of pinning flow or the more sticky these areas become if you're to see you know a giant blue bar below you know I think that's an area where we tend to see a lot of volatility for example so the way the positions are added there's a cadence to them in dairy will happen next is we'll move up to 5200 after I follow see something nothing you know there's no.

[00:06:41] Hawkeye's tilt there and then we'll see 52 50 or 5300 build up in call positions and the people start to sell puts at 5200 and you'll see that.

[00:06:51] Orange bar 50 dollar neutralize right become more puts and the whole structure will shift up so you know we could be talking here where my next slide my last slide that was at 5000 to you know 5100 when we do this last month now we're going to be at you know 5352505000 right so it's just a range slides higher.

[00:07:11] So is the idea if we came down to 5000 we would see that as like a significant support level because of all the activity there there's a lot of hedging activity that should be invoked I think at that level it's a there's a lot of positions there.

[00:07:23] And so the psychological level I think just anytime you see big round numbers you know a trails look at that as support resistance and so the theory is that there should be a lot of hedging flows unlocked.

[00:07:32] At that area which means you know people monetize their puts the add new positions will shift things around and that should for this week this is the week of March 11th add some support and then.

[00:07:43] You know next week we turn the FMC so there's a little path dependency on that that could shake out movie for but to your general point there I do look at that as a large support level that's something that we make note of in our.

[00:07:54] Are daily research pieces on the next slide this is going to do every time this options and volatility slide in one of the things i've noticed in correct if i'm wrong but I do think we split a little bit to the left here.

[00:08:04] A little bit lower gamma or a little bit higher volatility so it seems like maybe we're moving a little bit in that direction is that right yeah you're absolutely right we were around the 1.5 is area in the last last month this month we moved.

[00:08:19] Down now so we're just under this one on this chart and what's interesting about this is that.

[00:08:23] Will we do here is we calculate the amount of gamma in the S&P 500 and we found that that helps to forecast forward realized excuse me for volatility so basically what the gamma reading is today can help us forecast with build volatility will be tomorrow.

[00:08:37] And this is tied to how those positions build up but which you'll see here is if we just start moving a little more to the left.

[00:08:44] On the gamma positioning volatility really starts to increase so how do we get.

[00:08:50] A lower gamma index you reduce call positions or you add puts either one will shift this gamma reading to the left a little bit more the chart which tells us that there's volatility around the corner so the S&P slides a little bit lower.

[00:09:05] Kind of in the 5,000s or just above 51 hundred last time a check and where people start buying some puts around you know pal coming up or see power whatever may be that's that.

[00:09:16] Area where things can get.

[00:09:18] Squirrely right that's where you start to see daily moves of 2 or 3% like real big selloffs so we're at that cost for that precipice here going into this exploration the other thing they could shift us here is that we're going to lose a lot of call positions with expiration here so the removal of those calls.

[00:09:34] Could in and of itself reduce the amount of gamma in our readings which really primes us to be have a very volatile environment.

[00:09:44] And so you know if you're thinking hey is this a scenario where I need to maybe hedge my portfolio by some puts whatever my answer would be yes based on our data and our research this is an area where things can get kind of messy and to that point the VIX has snuck up it's around 15.

[00:10:02] Some of that is CPI tomorrow morning.

[00:10:04] And then you know we have a range of cattle set that come up ahead of that as well so you know this is a very interesting moment time here for markets.

[00:10:11] Maybe in future of effects here we're going to get some excitement we're not going to be using like titles like record low volatility on YouTube and stuff we might actually get a little bit a little bit of movement here.

[00:10:20] Well you know it's there's a bunch of things that correlate to you know something is about to happen right.

[00:10:28] And there's been a lot of realized volatility in single stocks.

[00:10:32] There's a bunch of information suggesting that's kind of breaking apart a little bit.

[00:10:36] Our gamma readings are sliding down we have plenty of catalysts coming up in the next week I mean you know a slew of them.

[00:10:44] And there's been a lot of this energy in crypto and in in video and all his own that it really stretched things up right and so that energies gotta.

[00:10:53] You know go somewhere and I think when you really like pulling the rubber band back like you let the rubber band go doesn't fall on the ground like it slingshots off so I you know I think that we're.

[00:11:07] We're really at this very very stretched position in a lot of different metrics we'll be talking about here in the next couple slides but you know this is a time where.

[00:11:15] You know some consolidation some meter version like you know last.

[00:11:19] The February feel like this is getting a little stretch skin a little weird here you go okay like we're you know 10 out of the 10 stretched and there's triggers finally so again it just it resorts back to this idea that it's a very interesting moment markets.

[00:11:32] So let's talk about the next slightly what's coming up here in March on the expression yeah so let's start with the size of positions at expiration.

[00:11:42] Here in the purple you see call positions and what we do is we measure Delta because it basically tells us this the size of the stock notional equivalent.

[00:11:51] And you know this is hundreds of millions of dollars of.

[00:11:57] Single stock call positions that have gain and value over the last four to six weeks.

[00:12:03] And this is a very lopsided position meaning that this is all calls out of a crew that's not surprising right because.

[00:12:10] All the semi chip stocks are rally so much crypto stocks you know broadly the markets up so there's a huge column balance these are short dated calls that have built up.

[00:12:19] And I think when you get these imbalances and they expire it often leads to mean reversion in stocks now we saw a.

[00:12:26] Very large January expiration the difference between the January expiration which had a ton of calls and this is that those January call positions were leaps there were positions that were in place for a very long time.

[00:12:36] These were call positions that have largely accrued in value over the last couple of weeks it's a lot of speculated short dated order flow.

[00:12:44] And there's a bunch of other signals that show us that.

[00:12:48] The things are.

[00:12:50] Really too far skewed to the to the call side of the equation this is.

[00:12:55] In order of magnitude larger than we saw in December which was the last pretty large options expiration as well so this is a significant.

[00:13:03] Obsis expiration in terms of size and it's in theory the removal of these calls could do a lot to stall out the momentum in the markets and we have some data that suggests that.

[00:13:15] That momentum tends to stall the week into expiration not necessarily the kind of days after I can I can touch on that as well.

[00:13:23] So is this simole call heavy I think like January was pretty call heavy you mentioned the leaves February was called heavily as well.

[00:13:29] Is this like a similar ratio here or is it getting this is an order of magnitude bigger than February and it's about double that of the December expiration December is always one of the bigger expirations of the year just because the year and so you know you're.

[00:13:43] We're talking about a significantly larger biometrics you know two three times bangling name you're looking at.

[00:13:51] If not up to 10x more than what we saw in February again depending on the name and the sector you're looking at because the semis are as well showing data that you know semis stocks have really just blown it out of the water here over the last month really.

[00:14:06] Have a look at the ratio like outside of the size like the ratio of call to puts is that been kind of similar is that getting more extreme as we go.

[00:14:13] This is about as extreme as it gets so you know you're talking you know four to one five to one calls to put.

[00:14:19] And this is measuring specifically individual single stocks if you look at index flow it's about the same ratio as well and so if nothing else you can look at this and say well everybody's in calls right now you know nobody's in puts the problem is that historically people tend to buy single stock calls and it's not that unusual to see a ratio like that it's unusual to see this magnitude in terms of how big the numbers are right.

[00:14:47] You generally don't have you know billions of dollars of single stock call set to expire into an expiration right tick with the monthly expiration that will happen the quarter these were this stretch because of how hard the markets rallied you know this is a really rather significant event.

[00:15:04] So one of these we always do here at the object is that we hold ourselves accountable.

[00:15:08] Last month.

[00:15:10] Yeah, so yeah, can you talk about what our views were going into February and how they kind of played out anytime there's a bad call I tried to blame it on you.

[00:15:18] You should know.

[00:15:19] I've no idea what I'm talking about so you could definitely throw the bad folks on me as all jacks fall but there was there was two things that took out of our conversation from last time

[00:15:30] was that we were looking for some consolidation in the market because there was kind of like today.

[00:15:36] Although it was an order of magnitude are going to be lower than not just inside but involves and everything.

[00:15:41] We're looking for consolidation after February op X and then the second thing was there was these really concentrated calls skews people are very piled into calls.

[00:15:51] And if you remember, we were almost into Nvidia earnings and so we were saying like look.

[00:15:57] You know, this is a time for some consolidation here and the issue is we're about to go into Nvidia earnings and Nvidia just.

[00:16:06] Will do it out of the water in terms of their earnings right and that really ignited a fire in the market so what you can see here is that we recorded on Monday which was before CPI call like this month and there was indeed a consolidation all of 1.4% in the SB.

[00:16:23] Which qualifies actually is a significant retracement this year I don't know if you're aware of that but 1.3% is a mass.

[00:16:30] It's like a standard deviation to the other one.

[00:16:36] But so funny because you see the market pull down here and then Nvidia earnings so Monday was you know week in the markets and then I think it was Tuesday was when Nvidia earnings were and then Nvidia just annihilated it excuse me and it rallied

[00:16:51] and all tech stocks, all everything gapped up significantly after that.

[00:16:56] And then you know we were kind of off the races here that that incidentally the S&P excuse me the S&P into February after the expires was at 5,000 that was a big strike we highlighted now right 5100 right we just we just keep stair step in 100 handles every single expiration.

[00:17:13] And so you know now we're at 5100 I think Fed could probably pop us to 5200 in a second maybe you CPI tomorrow so we're just going to keep maybe step at higher.

[00:17:22] But what's also interesting about this expiration was we had the Nvidia product announcement on Monday which a lot of people are paying attention to and I'll qualify that or I quantify that maybe a little bit in terms of the implied balls that were looking at.

[00:17:37] So related to that was this idea that there was these I call them heavy call skews heavy call game it's all heavy because it's just big in this case we ranked.

[00:17:48] What we call our skew rank skew measures implied volume of calls versus puts and what you could see here is there's this kind of blob and the yellow blob was at the bottom right of this chart which shows us that people were very into call positions.

[00:18:06] Significantly this ranks them so we were at 90% tile rank across most large stocks stocks heavy options on so everybody was you know into calls into this position I listed in this chart all the.

[00:18:21] Big you know semi stocks chip stocks they all huge call skews the mag seven's odd big calls use it was extremely bullish environment and then what happened was you threw Nvidia gasoline into that fire and then you know just bam.

[00:18:36] You know stuff just accelerate right and there was just a lot of massive upside so we've now.

[00:18:43] shifted higher in this single stock space as a result of those elements all combining and we are now here you know i've been using the analogy that if you've ever watched like divergent Atlantic like.

[00:18:57] Rocketship it takes people up into zero gravity and then they like float around for a minute and then they come back to earth like I think we're in that zero gravity moment like we're all floating around like we've been on the call rocket ship.

[00:19:09] And and it's running on themes and we're going to have to like you know consolidate a little bit here right like return to atmosphere for for a few minutes.

[00:19:17] And I and I prefaced this was saying that.

[00:19:20] What well I think we're headed for a top I don't think we're headed for the top even though my specialty tends to be 30 days out in time max.

[00:19:29] So you know i'm not trying to stake my my flag here saying that this is the top of 2024 but it does seem like it's a short term area for for some retracement yeah the Nvidia thing has been just shocking to me like the ability.

[00:19:42] We kind of showed it last week or last month in the options the expectations were very high and you saw that like in the numbers to but they're just.

[00:19:50] Like blow you think like that's a setup for disappointment but like the revenue growth and everything it's amazing like the numbers they're putting up.

[00:19:58] Or just so off the charts that like it's just beyond anything anybody can expect.

[00:20:02] Yeah i mean i think you can say that it's undervalued just in terms of you know.

[00:20:09] I mean there's a lot of there's a lot of four p's that people are posting on the same thing with smc i which was one that you know is gone just.

[00:20:16] 10 fold in the in this year i think and you know now it's added to the smp 500 which is a fascinating thing as well that chip stock so.

[00:20:23] You know i'm about here to talk about the value of a name or whatever it is i am here to offer some opinions on the rate of change.

[00:20:31] I also think that you know.

[00:20:34] I thought about this a lot in that so much of what happens in markets today is is all just a momentum trade and you know there's so much behavior now that i'm going to buy the stock because stock goes up as opposed to like i think there's long term value here right there's so much chasing.

[00:20:51] Like an Nvidia for example i didn't know this to friday but there's an Nvidia 2x lever ETF that's all they do is a double lever and there's also also a 1.5 lever to video ETF why do you need both i don't really know.

[00:21:06] Do you care to guess what the AUM of that Nvidia 2x remember it was very very large but i don't know the exact number so billion dollars that's crazy.

[00:21:16] Now some of that is because Nvidia's gone up you know whatever 200% or something in the last two weeks or whatever but you know the point is the same is like that's just the lever ETF space.

[00:21:28] Nvidia is now itself of the socks ETF semi semi chip ETF it's now the it's larger now than the other 30 components of that ETF.

[00:21:40] Nvidia's and then.

[00:21:43] Interestingly socks the socks ETF also split this week which i thought was curious they don't so split in December but you know.

[00:21:51] When i was like it was funny because i was reviewing the 2021 data for a minute and there was this big high in august of 2021 that ended the date like apple and Tesla split on the same day and that was a day like the market had a really violent retracement i was thinking about this idea spot stock splits and I have to back test excuse me back to us at some point but.

[00:22:09] I really wonder like with the Nvidia ETF like how many of those the people that hold that your institutions who are sort of thinking about intelligently using it like sizing it properly and stop and how much or just a yolo.

[00:22:20] Like you know individuals who were just saying alright Nvidia kid knows there's nothing but go up like i'm just gonna throw all my money into something.

[00:22:27] You know i it's a fair question and like on friday there was a really ugly sell off you know Nvidia.

[00:22:35] In the morning went from you know up to 980 area and and then it in a just completely tanked was one of the largest option selling flows in a single stock i've ever seen on friday afternoon and Nvidia and the stock i think what from.

[00:22:50] It was about 980 and it closed in the high hundreds i believe and it's having a little bit of trouble today but that.

[00:22:56] Nvidia double levered ETF lost from its hide what's low i think 20% on the day and it was still it's still 160% i think it is for this year.

[00:23:05] But the amount of volatility and just that thing.

[00:23:08] And not to mention the fact that you know this is the third largest component of the s and p 500 and it's trading like a meme stock and i think that's really rather fascinating because there are all these index was that in theory should.

[00:23:21] Rattle the volatility of that thing right and and.

[00:23:25] You know just doesn't seem to be happening so.

[00:23:28] You know these are signs of instability obviously the market i mean there's no secret about that and everyone likes it when the instability is you know projected in the north region meaning like stocks are going.

[00:23:40] Violet higher like everyone feels great but when that if and when that flips i mean invariably we have some big drawdowns right.

[00:23:48] And then suddenly it's like what's have investigations on all this crap that's going on well you know like.

[00:23:53] The time to figure out why we need a 2x Nvidia ETF and a 1.5 X and video ETF is like what's let's think about that now or a.

[00:24:01] Because the other problem is you know related this is like there's a new ETF launched every day now that sells you know zero DTE options.

[00:24:11] And you know there's a lot of structure conversation around the structural issues around that as well so.

[00:24:15] The financialization of markets here is i mean this totally outside the purview we're talking about but.

[00:24:20] And then to your point earlier like one of the things that has a fundamental guy that got me into like this whole options flows thing is there's so many.

[00:24:27] You could definitely argue like the percentage of flows in the market that relate to fundamentals is significantly down over time like to percentage of flows that relate to other things is up a lot and so you see a lot of the movement in these companies and you know a lot of fundamental investors believe you a fundamental don't matter as much anymore because you see so many of these other things.

[00:24:45] Writing like these stock prices around it's really interested to get under the hood and understand what those things are.

[00:24:51] Yeah i think that's you know i mean it's a great point um you know 50% of the options volume now is zero DTE or tied to the next expiration of been on what you're looking at.

[00:25:02] You see the size of options flows trading every day is just you know if there are momentum trades related to some standard strategy or whatever it may be.

[00:25:11] um you know dealing with an extended trading view of from 930 to 4pm and that's really it right and.

[00:25:21] I think when a stock sells off a lot and there's a value proposition you see some money come into that and then you know we're talking about how fast things go the upside they they really untether from reality i think it's hard to argue that i mean if you look at.

[00:25:35] Micro strategy which is the Bitcoin ETF i've been saying this because i just think it's amusing their famous for owning mstr

[00:25:41] They own a hundred and 93 thousand bitcoins and that's why everyone knows what the company is or has heard of it.

[00:25:49] It's outpacing the gain of of Bitcoin i'm gonna screw this up as you get the journal it like 10 to 20 x so like if Bitcoin goes up 1% micro strategy is going up 10%

[00:26:01] And the stated purpose of the company is they sell business and a business analytics software right.

[00:26:07] Um that's if you go to their web page that's what they're trying to sell you but but you know they own this Bitcoin and so it's like it's bizarre because.

[00:26:16] It's almost like a SPAC but it also just goes up at the rate of change that it goes up is.

[00:26:21] We'll untether from the you know the Bitcoin that it owns um yeah it's become like a better proxy for Bitcoin basically it's a lever it's exactly a great.

[00:26:29] Right yeah much better said than i then i said it um and i just use that as an example because.

[00:26:35] Like if it was going up with the pace of Bitcoin or like 2x Bitcoin you go like okay that gets the kind of makes sense but it's not it's it's a magnitude higher than the Bitcoin returns um and you know it's uh it's really pretty wild to see.

[00:26:48] So at any rate the the semis you can see here this is SMH it's had an incredible year and.

[00:26:55] You know we used to have fang then it was like fang plus teedad tesla then we had mag sevens and now look the only thing is.

[00:27:02] chip stocks that's the biggest driver of the market apple and google actually have not been doing very well they've been sputtering as at Microsoft you could argue.

[00:27:11] Amazon is kind of doing okay meta is the only really.

[00:27:14] Kind of non Nvidia mag seven name that's.

[00:27:20] doing okay you know it's had a pretty good return but but some of these other names like you know bircher dump an apple and it's had a lot of problems google's had problems with their hour those stocks are not performing that well so.

[00:27:30] Literally that we're heading on to crypto and chip stocks there's some overlap there I guess but um you know this is another thing that's like okay.

[00:27:40] Like what's going to take us to that next level you know maybe it's generative AI that Nvidia announces on monday i don't i don't know but well you know we'll see uh can't count them out of anything at the moment so.

[00:27:53] This this next one's really interesting this uh you looked at the forward returns of the spx relative to bitcoin trailing returns yeah what did they say.

[00:28:02] Well i came i did this recently a very short dated returns and there are terms of bitcoin it was like on a one day basis if if big coins up like over the last day the five days from here returns to be five so what I did here was I looked at the previous five day returns of Bitcoin instead of its positive just.

[00:28:20] You know give me a little histogram here of the forward one month returns essentially the sb as you can see there's a there's a positive skew to these returns um.

[00:28:29] You know 50 basis points is you know kind of what I would say is is the mean of this and.

[00:28:37] You know so that's the environment bitcoins going crazy i'm not here to offer the macro thesis for why that is but.

[00:28:46] Just when you look at bitcoin is a proxy for risk taking which I tend to look at it as um it shows you that people are willing to step out of the risk spectrum in.

[00:28:55] This asset and is it changing into a different kind of acid and flation hedge or maybe i don't know but i just generally think if big coins going up and.

[00:29:05] Like all these other cryptos are going up the name of the cryptos now that come out our hilarious i can't say any of them on the.

[00:29:11] On the podcast here but go and look some of them up they're they're extremely inappropriate but funny nonetheless and they're all going up at 1000% a day i have to do censoring in the editing which i have not learned how to do yet so i appreciate you not saying.

[00:29:23] Yeah it's pretty music so you know there's a ton of risk appetite out there in that space which ties in this but.

[00:29:30] So the.

[00:29:32] The other one that's breaking out is gold and as.

[00:29:35] I'm an old man in waiting uh you know.

[00:29:39] Meaning i love gold and uh.

[00:29:42] I like you know historical coins and things like that so whatever gold is finally broken out from this.

[00:29:48] Quintuple top i guess that it was around 2050 whatever it is it's breaking higher and so.

[00:29:54] Jeffries post of this chart a caught which shows you the forward returns of a 5% one month rallying goal and and everyone saying well this doesn't have anything to do with options but i still just found it fascinating so here's some extra value um and you can see over the short.

[00:30:08] Turn the returns are somewhat noisy but look at the 4 3 month and 6 month 12 month returns of the s and p they're all up from 2.5% at 3 months to 8% at 6 months returns 70 plus percent of the time the s and p is positive after you see something like this that's an impressive correlation um and you overlay that with this Bitcoin i didn't my stats are a little more loosey goosey than what Jeffries provided but the point is the same you know these two things screaming higher generally.

[00:30:38] Speak towards positive returns in you know out in time a little bit right and and so i just thought that was fascinating and needed to add that little segue in yeah i wouldn't have guessed that was gold i wouldn't have guessed like the s and p's up that percentage of time when goals up.

[00:30:52] Yeah i would have thought gold would be up maybe more in periods where the s and p was going to be you know a little more questionable.

[00:30:57] Yeah and i think if you look at gold it made a you know it didn't pretty well the second hat i guess the early part of 2022 uh which one that market s and p really fell apart and then it.

[00:31:10] It really fell down in the second half of 2022 which is one inflation spike so i think anyone was thinking that it was an inflation hedge um.

[00:31:18] You know it was convinced that it wasn't the case in 2023 so why why gold and Bitcoin both going crazy right now and stocks are going crazy it's like all assets are going up um

[00:31:30] I don't know much on the macro perspective but feels like there's a rate cut joke that should be.

[00:31:36] I'm going to go with you and then after the fact that i'm the cut great.

[00:31:40] I'm like Brent in a different shirt but inserting the inserting the joke that he comes up with later.

[00:31:44] But um so this next slide uh you got at the edge the degree of the chasing that's going on I think is what you're getting out with this yeah so now we'll move back to the opposite stuff so macro Brent can uh go take a seat in the corner um.

[00:31:58] This is a chart and it comes from the OCC options clearing corp and they tell us whether options are bar sold on a weekly basis so this is their data they're kind of like.

[00:32:06] The quasi government clearing institution and what you could see here is that this is single stock equities by the open premium in blue and it has gone vertical over the last week or two.

[00:32:18] And it it's nearly taking out the 2021 high now November of 2021 cap off like the craziest speculative period that I can remember um.

[00:32:32] You know it was the combination of game stock from jay or 2021 the tesla media stocks with like well just insanity um and.

[00:32:42] We're now in a premium bought basis just under that November high what's interesting about this is that on the bottom right here I have options equity premium these are the calls that are sold to close so what this is showing us is that there's a huge amount of calls being bought.

[00:33:02] There's a few mongest amount of calls being sold that tells me there's a giant amount of speculative day trading activity taking place this is also categorized by entity type so this is not market makers this is not dealers who've been suffering.

[00:33:18] This is retail and or hedge funds are both classified in the same they both have the same classification of this data um so it's pure speculation if you saw calls being bought like off of a bottom and not being sold to go oh people think that this is value being unlocked like the markets out of low they want to buy the dip that's this is not what this is this is.

[00:33:41] There's a lot of speculative behavior and stock values increasing significantly that drives up the premium being bought so if you look at this on a contract basis the magnitude is a little bit more constricted meaning you know we're measuring a contract basis you still see us closer to you know 2021 levels but the premium to me expresses also the fact that stocks are going parabolic so the value of user going parabolic and there's just a lot of.

[00:34:11] Just flickering positions back and forth right and that's pure pure speculation back to our original point about you know so much of like there's so much financialization in this market and it really rears its head during these times of kind of froth I guess I call them.

[00:34:29] So this last slide before we look forward to what's moving this time this is something you've talked about in previous episodes this whole 2021 comparison um is that we're getting out here yeah the reason I highlighted this is because

[00:34:40] when you look at 2021 remember there was the mean mania and then there was the crazy apple Tesla split that was like I'm you know August 29th I think they split like September 1st somewhere in that area was like the one these stocks split and that led to a big draw down the market and you know I think now we have the other takeaway from this chart is that the dips in 2021 were often violent but would last like a day and it would be a lot of money.

[00:35:09] And it would came like this rolling joke of like oh great markets down it's just this like value has been unlocked so I can like buy it and you know people joke about their terms of just buying the zero dt calls anytime there was a red day and then the market will go back up and you would profit in that I feel like that's the environment we're in now.

[00:35:27] And you know I don't want to wait back in the mag or again but and I don't know anything about you know rates and policies and you know I am in the camp though that fiscal monetary policy is probably going to at least be fairly neutral to to uh benefiting you know the incumbent in this election here.

[00:35:50] You know that's a call to conspiracy I don't think is that crazy of a notion I just don't think like anything that crazy to have them before an election so the idea that we're going to get some kind of restricted policy or something that's really going to stamp this out feels.

[00:36:03] I don't know maybe unlikely so anyway this reminds me a lot of period not just because the size of the volumes but you know what's going to stop the behavior like what breaks the cycle of speculative activity like.

[00:36:16] Threatening the rate cut probably would right like a bank failure or something but you know that stuff seems to be all getting bailed out right now and I think.

[00:36:25] fiscal monetary policy seems to be a combative to higher asset prices at the moment is my.

[00:36:32] General yeah it's interesting to read just in an interview that I just finished like an hour ago with the dad Doug Clinton from deep water he works a team monster there with a tech you know hedge fund type thing and like he has this thesis that basically we're.

[00:36:45] Maybe like any three or four of an AI bubble that will eventually be bigger than the dot com bubble.

[00:36:51] So again you never know if that's going to play out that way a lot of the world to play out a lot of different ways but it's just interesting to think about that like given where we are like this could you know talking about going through the election and stuff I mean this could get a lot bigger than it is and that's the challenge with these things as you can never.

[00:37:05] timing is very very hard like timing when they're going to end is very very hard yeah and this is why I brought up at the beginning like a top is not you know the top and.

[00:37:16] You have these violent rallies that can or excuse me via the clients that could take place in the face of these you know equally massive rallies and no those dips tend to get bought.

[00:37:27] And you know what's like this is a behavioral aspect of trading that you have this build up of these flows and everyone's piloting these zero DT flows and it keeps working and there's a lot of foam like oh I missed the dip in an video last week but now it's down 5% like I got to get in now right and and there's that it's like what breaks that behavior.

[00:37:48] um in you know in 2021 it was the clear shot across the bow that you know rates were going to go higher you know I think that the smart people snift that out and that.

[00:38:01] Like initially stall the rally we still close that year at all time highs um but what breaks that behavior now i don't know what the answer that question is I think it's one of those things will know we'll see it I have some things i'm watching for his wrist signals as that for that longer term top but for.

[00:38:17] Now i think you're just sort of.

[00:38:21] You have to operate on the idea that dips are going to get bought and you can watch wall for example and see that like puts just don't get bought when the market gets so sells off like you just don't really see it.

[00:38:31] For example so like people aren't necessarily interested in hedging those kinds of things so it's interesting.

[00:38:37] Like this whole thing on time frame is really interesting maybe because when you talk to different investors like that's something you always have to keep in mind like for instance you said earlier you're really thinking with what you're seeing here like on a 30 day time frame a lot of time.

[00:38:50] You know someone like awesome we manage money for clients were thinking on like crazy crazy long term time frames yeah and a dog is thinking you know with his bubble thesis he's thinking on like a three year time frame so.

[00:38:59] This is may or not play out but you know for you there's a lot of 30 day periods between now and then that you're going to look at you know so it's interesting to think about everybody's kind of operating on these different time frames in terms of how they think about what they're doing.

[00:39:11] Yeah I think that you know for the for the.

[00:39:14] I mean there's a famous saying by George soros about you know when he sees a bubble like he rushes into buy or whatever it is and and.

[00:39:20] You know I like in 2021 the bubble kept going I've a chart on that that we can check out you know the bubble kept going for you know big chunk of the year and.

[00:39:32] I think that it takes like to pop the bubble you have to like break the behavior you know what I mean for getting valuations and and now you have I think so much more leverage that can be invoked by the everyday trader.

[00:39:48] Back to the Nvidia 2x ETFs and zero DT calls and all sort of stuff that you know why shouldn't we have a bubble that's bigger than all other bubbles right just because of the leverage that these types of products and vote I mean.

[00:40:01] Yes people can get in and out faster arguably than they ever could before you know there's more electronic access and whatever so maybe that temper some of it but.

[00:40:09] I do think that the idea that.

[00:40:12] Things can get crazier than you expect like that that feels like this environment.

[00:40:17] That's it that seems to always happen like I remember in the dot com you know bubble we got to like the cake you know the sick of the adjustment fee ratio got like 45 on the S&P which was the highest ever.

[00:40:27] Yeah and a lot of people thought it would never go there because it got the 45 but you know if you look at Japan and their bubble they got to 100.

[00:40:34] On the cage so they got doubles evaluation of what US got in the dot com but when they obviously hate a huge price for decades on in terms of their returns because it did so.

[00:40:42] You just can't say like that's what's hard about these things you can't say how far they're going to go but also when they do end you know probably the further they get stretched like your rubber band analogy the uglier it's going to be.

[00:40:53] And unless you think you're the guy you know thought it's hard to be the guy that picks the top and like sells everything at the top you know you don't know you don't know it's the top till after the top is over.

[00:41:01] Yeah and emotionally it's very difficult to to say like this is crazy i'm not going on vacation for six months because you sit there for six months and miss 20% upside and you just.

[00:41:10] You know you want to go nuts and then you get in and the market sells off 40% you know i mean that's just the those cycles are kind of as old as time um and.

[00:41:21] You know so.

[00:41:23] As crazy things goes like you know the Nvidia thing comes up and if Nvidia is like hey we just came up with this new thing and it was like holy cow like there's another you know.

[00:41:31] Whatever 10 15 billion dollars a month a year and revenue and then pal is like hey guys like we're good for now don't worry about it like.

[00:41:38] I mean it's hard to believe that we don't go up you know five more percent right by the next time we have this conversation so um there's a lot of dependency i think over the next couple days with these trigger point like CPI tomorrow that's hot and markets probably going to pay.

[00:41:50] A short term price but then again me if Nvidia is good and fmc's good then.

[00:41:55] You know.

[00:41:56] Exciting and dovish um than who's is.

[00:41:59] We probably just repump right in that speculative behavior comes back in it just comes back in at a higher price which is bigger value swinging around and.

[00:42:07] You know just kind of.

[00:42:08] Repeat the cycle here so it's going to be a very interesting week or two yeah and as we switch here to what's moving i would say if we ranked like the titles of all of our various slides will be the most popular title given the environment we've been in which is this record call volumes so we've been talking about this idea a lot.

[00:42:23] Yeah this is week weekly call volumes uh and weekly put volumes and so we this past week we took out.

[00:42:32] Every high sense november of 2021 so it's the only period that has higher call volumes not premiums are in the pure volume um and then you can see puts are.

[00:42:43] Off the off the ropes but a lot of those puts are being sold um in my view and you could tell that by the way implied ball moves around so um you know calls are.

[00:42:54] Like when you look at the options market right and you and you are looking for that verifiable sign that things have gone just a little too crazy

[00:43:01] you look at that zero dt volume chart mentioned before okay now you got your record call volumes um and then you know we can pile into some other.

[00:43:09] Charts that back this idea that okay like we're a short term like really overstretched.

[00:43:15] Um this is data that comes from the s a p global we did a write up on this i put a link there in the in the in the slide.

[00:43:23] If you look at correlation uh correlation tells us you know obviously uh in this case it's comparing the components of the s and p 500 to the s and p mid cap index versus the index itself.

[00:43:35] So what's the correlation of those components and that's the red line on the left um that is near lows going back a couple of years right so what that's basically telling us obviously is that

[00:43:45] the components of the index are moving in the same direction necessarily and that speaks to this idea of you know poor market breadth or whatever

[00:43:53] you know how everyone is described that semi semi stock chip sucks nothing's going on the top is dispersion and volatility so dispersion tells us how.

[00:44:01] Much to individual components are moving apart from each other so to speak so.

[00:44:06] What we have now in this environment is.

[00:44:09] The situation where certain components of the s and p 500 are going bananas to the upside right not shocking and video goes crazy

[00:44:16] avidogo's crazy google doesn't do anything koka kola i don't know what that's like so probably very little right if not down um so that dispersion moving move up is telling us that there's a lot of stuff moving the individual components are moving.

[00:44:30] Um link to that is volatility which is just the volatility index which is

[00:44:35] is not at its lows it's fairly low but it's up a little bit so you have a mild stock up volup but but really it's not much so.

[00:44:44] You look at this and go okay stuff is moving the correlation was very low um why does that matter well typically what happens when you have

[00:44:53] a lot of or a high dispersion reading here is the market is crashing so the the period that you can think of is March 2020 when the world shut down because of COVID all stocks went down right every single stock in the world went down.

[00:45:08] Some stuff went down more than others cruise lines were marked at zero essentially right like energy was marked at negative.

[00:45:15] Hospital stocks were probably okay or i think some gold miners made it all right whatever it is like some things didn't go down as much as others essentially what it is right so something so it all moved in one direction was drove correlation up so you can see the correlation is at highs in that period and dispersion moved up because again some components are moving and then index volatility went through the roof right that like the VIX went.

[00:45:37] I think i almost hit 100 you know an intraday basis back to like it just went bananas so.

[00:45:43] This is weird in that that the manager's moving and correlation is down so much um so why does that.

[00:45:51] You know what's weird about that well the S&P global if you kind of dig through some of their white papers they show you this chart and this was updated by them last 10 years ago but I found it just thought man this looks so familiar.

[00:46:04] They have this chart of the VIX which is in the green and the in the VIX as you can see is flat right through this period of 2000 night late 99.

[00:46:12] 2000 but you can see that dispersion reading jump way up right and so when you think about the stock market bubble the 2000s the tech bubble it was petstock calm building up however many times that went up and yada yada yada like all those individual stocks just it was the internet bubble that drove the dispersion reading very high but vault self didn't really move up and so.

[00:46:34] That's very similar to the environment that we have right now um extraordinary summer and so that dispersion reading is it is a marked you can view that as a signal market bread you can view it viewed as the rubber band being stretched you can view it as you know all those kind of.

[00:46:52] Trader axioms and just to read this is this from their research is from 10 years ago they didn't write this recently so i'm just reading with the rope but they wrote the period between April 1999 in 2001 showed a marked increase in dispersion driven by the deeply idiosyncratic behavior of the technology sector but index

[00:47:10] quality did not rise as sectors other than technology performed more normally thus dispersion can be can better capture periods where only a portion of the market either bubbles or crashes so.

[00:47:24] You know i just thought that that like i could have you know that come in red today right about i could post that chart read that same thing today and.

[00:47:33] You know that it's verbatim super fascinating i mean it's interesting to me do you know if we're seeing like we're probably not seeing as great dispersion as we saw like in the late 90s yet right or do you know that well i mean is a different market and in that you know there's way more trading vehicles and stocks and you know so so.

[00:47:50] is.

[00:47:51] They they're dispersion reading in this monthly dispersion index here goes up to 15 to 20% you know like the dispersion reading right now is 20 to 25% i don't know if they change the metrics back then from what they how they used to calculate the components of all certainly change of the index itself.

[00:48:09] You know we had the 2008 crash to think change a lot of dynamics of things and you know then on and off from there so i don't know you know to say that.

[00:48:17] There's as much now is back then i don't i can't quite make that claim definitively what i can say is that the s and p 500 level dispersion is.

[00:48:27] Nearly as high as it was back to february of 2020 which you have to figure was an extreme reading in dispersion regardless of which direction mark was going in and if you look at the mid cap level dispersion the only data point that's higher in the last four years is March of 2020 so.

[00:48:45] You know this is to the point before where like are we in stage three of the bubble or five of the bubble i think it's safe to say we're in the bubble but you know if you will at what point you say hey i'm getting out of this thing right like.

[00:48:59] I don't know that it's over yet i don't you know who knows it's the million dollar question and also tied back to this is a top or D top.

[00:49:07] When there's anybody looked at like dispersion versus forward returns like over a longer period of time just to see what it means for forward returns when it rises.

[00:49:15] I it's a it's an excellent question i've i've not done that i tried to get the data itself like to download from from the s and p global and i didn't find it available.

[00:49:30] I think it might not even go back that long of a period of time yeah there's like there's like huge gap in the in the data so i think you know if you may be paid for it you could probably get some stuff i also think that they used to have a deal with the vix and the seabow and they don't it's like again the data change will be here

[00:49:44] i think with a bloomberg terminal you can probably like figure that out pretty quick and it's worth investigating and and would be super interesting.

[00:49:53] This is from the cbu they launched some dispersion indices which kind of have like an so like the correlation dispersion indices here are just based on stock movement.

[00:50:02] The cbu dispersion indices are somewhat measuring the same thing but they look at.

[00:50:08] I believe they look at the implied vols in in market so it's kind of like an options take on dispersion and this came out actually today.

[00:50:16] So i jammed into the presentation and their dispersion reading here is as high as it been over the last.

[00:50:21] Really year is a little higher in july of last year but essentially what they say here i put a quote from their.

[00:50:27] Lead analyst is a mani zoo shire i thought great stuff and you know essentially what she's saying here i'm paraphrasing is that.

[00:50:36] In video implied vol and other chip makers in some of these mega cap names are really driving this dispersion index higher they're you know they are what's driving.

[00:50:47] These readings to be just pretty crazy right and this is a short term chart is what they put in their morning note and so.

[00:50:54] You know this is again this sign that there's just certain stocks that are really kind of blowing things out and moving things so significantly.

[00:51:03] um

[00:51:05] And so i you know this is the data that says hey you know these moves are anomalous and you know how much longer can they continue.

[00:51:12] The problem my view is that when you have volatility going up as the market goes up well in the stock pauses and that volatility stops.

[00:51:22] Driving higher as the stock goes up that you know that volatility is going to come down so what happens with the volatility comes down well i think stocks come down with it.

[00:51:30] It's the same thing like if the vix spikes as the market crashes if volatility comes down all these puts lose value and that.

[00:51:37] tends to drive the market to rally up and this is you know a lot i think this is really the same thing in my view uh we have stock up vol up and when that.

[00:51:47] Stock stops it pauses like that zero gravity situation um then we start to kind of come back down to earth a little bit.

[00:51:55] This next one's interesting is that you're looking at 20 day moving average of tech call volume versus overall market thought right.

[00:52:02] Yeah so i just looked at call volume this is uh Nvidia AMD AvGo SMCI you know the top.

[00:52:11] semi stock names um and what you can see here is a.

[00:52:16] Real breakout in call volumes um it's about 8% now of total.

[00:52:22] Call volume in the us options market is these chip stocks uh and this is just a contract basis not premium so obviously a lot of this is.

[00:52:31] Uh Nvidia but you can't wave a finger at some of the things i've been having an arm and AMD and SMCI either right like this complex is just going pretty wild so this is about 8% i just for comparison purposes i showed.

[00:52:43] What that similar metric looked like in.

[00:52:46] Fang plus T which was like kind of the last in 2021 like that was the sector right like by the fangs and um so if you look in 2021.

[00:52:58] Know those volumes peaked really in the 12% ish what's interesting is the the highs of.

[00:53:05] That is a as a sector came at the end of 2022 was basically huge by the dip right in those names are weakest at the end of 2022 and that turned to be 17 to 18% of the volume but those were all the stocks that have the biggest market cap right and when you're talking about.

[00:53:21] At the time this Facebook Apple Amazon i included meta in that thing you know.

[00:53:26] Analysis so so it kind of makes sense that those top you know seven names or whatever they be would be such a large component.

[00:53:34] In this case you're talking about.

[00:53:36] Obviously much smaller sucks out of stocks and and it's really started when see how that has broken out over the last three or four months right the amount of volume so again another metric here tells you to like.

[00:53:48] How wild this is gotten in a short amount of time so does this next slide kind of give us some reason for pause here to some reason to think that this might be falling apart a little bit.

[00:53:57] Yeah so i posted this shark of.

[00:54:01] You know the skew rank versus IV rank before and I changed the access he's a little bit just to confuse the crap out of everybody here but so bottom line of this chart needs lot call buying right low volatility relative low volatility environment because earnings had passed by and large.

[00:54:18] And.

[00:54:20] This is this measures one month options activity and everything is very concentrated towards the positive 99 you know 90th percentile skew rank which means calls are very rich.

[00:54:32] To lot demand for calls is what that's telling us the most recent disposal excuse me the most recent skew rank reading I have that that yellow blob would be up here on the top left on this chart and what you're seeing is.

[00:54:46] The shade of red has dispersed across this chart it looks almost like a cloud or like a storm system moving now crosses opposed like a hurricane basically um and so what this is telling us is that that big those call skews that were so concentrated across all names now they're.

[00:55:04] Shifting where it's more about called losing value now as opposed necessarily bid to puts so if you think about skews is ranking call.

[00:55:13] implied all relative to put implied ball um so calls are coming down in value there's not necessarily big big per puts yet but those calls are really cooling off and then we see implied ball rank starting to shift up that's a little unusual.

[00:55:28] Considering that earnings we just passed earning season so volatility is increasing which can be expression of stock moving up or down and that tight call.

[00:55:39] skew that we had with that heavy call skew we keep referring is is breaking apart.

[00:55:46] um why would that be well stocks are incredibly you know over the first.

[00:55:53] 4 or 3 3 months of the year.

[00:55:56] Um Friday you know was it was a real interesting like earnings are behind us Avgo Marvo with the last two that can really spark things they didn't really turn up much of their earnings report.

[00:56:07] SMCI is about to go into the S&P 500 which I think is going to really tamper ball till you down to that stock which was such a leader.

[00:56:14] Um in videos got this event on Monday but that's kind of the last hope for I think justifying another leg higher at this point and I think that's starting to be reflected in that call implied balls have gotten so crazy that I think people are monetizing them you also can't.

[00:56:30] Like when you pay too much for a call you can't make too much and so when you're buying these record high implied balls are these you know 90 plus percentile call skews.

[00:56:39] Um you could say you're paying too much right like you're the guy who's buying the house in Florida at.

[00:56:45] You know 2006 and December or whatever right like you don't want to pay too much of that house um and that's kind of like.

[00:56:51] Feels to be what's happening now and so this breakup of skews is a signal to me that the options market in terms of supply and demand that demand for calls is starting to fade.

[00:57:04] Um now this can turn quickly but it was a pretty consistent pattern before this and and this charge is really showing us that the.

[00:57:13] The there's shifts underneath the hood these next two are interesting so you're you're looking at this in video event you're looking at what's going on by the scenes.

[00:57:20] This is a similar chart that we use in the last episode um what what are you seeing there.

[00:57:25] Yeah so this is one month options. This is from a implied ball dashboard uh we just launched this by the way if it wasn't

[00:57:31] this should try and uh spot game and I can't be try that out but this shaded call is the 90 if to 100 excuse me 10th and 9th percentile of

[00:57:39] one month skew readings over the last 60 days so this included in video earnings which is a big deal right uh that always increases options implied

[00:57:47] ball a lot and what you can see is that this one month skew because of the event you have what's called a very high calls because

[00:57:54] you know people are still very bullish on the video people you know what could come of this thing on Monday I

[00:58:00] don't know it could be the god particle you know of AI sending it whatever I don't know um and people are bleeding

[00:58:08] that way and you can tell it because these out of the money calls have a higher implied volatility than

[00:58:12] at the money calls that that's a reflective of demand um it past performance obviously like stock keeps going up

[00:58:18] and so odds are what's gonna happen after this event is that these balls are gonna come down like the

[00:58:25] call skew's probably gonna flatten out a little bit which means that the out of the money calls will have such a high

[00:58:30] implied ball relative to the at the money so like this is a steep curve like a bike ramp it's gonna like flatten

[00:58:36] out to be like a normal road would be how do you think of it um and then implied ball till just in general

[00:58:41] Nvidia I think is gonna normalize so you know you can think of that as this entire green line really like

[00:58:47] deflating um as that ball comes down and if that happens that's a sign that call demand is cooling off

[00:58:55] significantly as well so I think the event will trigger like a release of what we call event ball

[00:59:00] that always reduces implied ball a little bit but a more normalization I think is likely to come after

[00:59:05] Nvidia event assuming they don't pull you know this incredible rabbi out of that which they could

[00:59:11] I you know they blew out earnings on a way that people didn't expect so when that happens

[00:59:17] I think you see a broader deflation of call demand across the chip sector in general which helps to

[00:59:24] cool off what I think is just an overheated short-term market um to sort of put some weight behind

[00:59:30] how much the chip stocks seem to care about this event this is time structure in the SMH and

[00:59:36] normally what happens is this plots at the money implied volatility by every single expiration so

[00:59:40] when there's a vent that raises implied volatility at given expiration so you can see here is that

[00:59:48] there's a very elevated implied ball related to the event um on Monday and then you know

[00:59:57] implied balls after the event cool off quite a bit you don't see the same structure when you look

[01:00:03] at other ETFs like you don't see this in the cues or spiders or whatever so me be indicating that

[01:00:11] this the SMH which is a big component of which is Nvidia obviously um but this just indicates to

[01:00:17] me that like people are expecting volatility out of that specific event kind of like an earnings

[01:00:22] date almost um and that's not necessarily driven by like CPI tomorrow FNC you know next week

[01:00:31] like there's some bigger macro events but when you compare the data again more broad-based ETFs

[01:00:35] you don't see the same structure and so that tells me that indeed like this is the leading sector

[01:00:40] of the market tons of call activity uh real signs of the exuberance across the options metrics and

[01:00:47] you know 90 something percentiles are you know in a like that tells you objectively that

[01:00:54] that stuff is all you know extremely high and I think the event really releases a lot of that

[01:00:59] energy uh and leads to a general cool interesting like always when these when there's high expectations

[01:01:05] going into these events they like most of the time I think they end up being like sell the news type

[01:01:08] things but then you get a video like reporting revenue growth it's unprecedented like at all time

[01:01:14] for a company at its size or the event is like something we've never even thought of that's like

[01:01:18] gonna change the world forever and like no one's gonna price that in so it's like you know the odds

[01:01:22] are in favor of it not doing that but then they they've tended to deliver these things that just

[01:01:26] seemed impossible next yeah that's 100% right and and you know these things I think are reflexive in

[01:01:33] that you know Nvidia pulled the rabbi out of the hat into earnings arguably the last couple of

[01:01:39] earnings and so you know they're assigned the higher probability of doing it again um you know

[01:01:45] I don't know what to imply all around was these events in the past I think they do this fairly

[01:01:48] regularly I'm gonna I bet that they are isn't this high and so it's like the bar for Nvidia keeps

[01:01:54] getting hired all these events so at some point you know it's kind of like the CPI's that we used

[01:01:59] to have where the CPI print you know like 2020 those like the most important print that has ever

[01:02:04] happened in all humanity and everyone would be like CPI we got to have like you know Twitter meetings

[01:02:09] and calls about it and stuff and and at at some point people were pricing in you know like 3%

[01:02:16] daily moves in the in the zero dt options and measure how much the market was anticipating in terms

[01:02:20] of movement it got's like 3% where you go it almost doesn't matter what CPI prints out we're not

[01:02:25] gonna get that move right out of this and I think when that happens just like anything else like

[01:02:30] when you overpay for calls or you overpay for puts like if you buy

[01:02:35] puts when the VIX that 100 it doesn't really matter what happens you're probably not gonna make

[01:02:39] money on that put right um you're not gonna make money on a call when you pay too much for

[01:02:44] you know it's just not like it just can't happen to that and you know like we're not at

[01:02:51] I think again this is not as stretch as it is into earnings like there's a there's a great chart

[01:02:56] out there where somebody bought you know they show the at-the-money call price of Nvidia in earnings

[01:03:04] and even though the stop was up 15% that at-the-money call was unchanged the next day because

[01:03:10] the implied wall was too high so you know this is the unwinding of that or the cooling off of all

[01:03:17] that I think has a dampening effect on the market and you know that's a correction uh all signs

[01:03:24] here point to correction is due um I mean that but you know again it's Nvidia so it keeps me

[01:03:30] ahead of you know I don't know do you not deliver what people expect um you know or don't deliver

[01:03:34] way above what people expect now when that day is gonna come I think but it's gotta be coming at some

[01:03:38] point in the future yes I think if you so it's like SMCI ball I think is gonna come down

[01:03:45] it's gonna go into the SM it's gonna go to the SMB 500 um all these other chip stocks I think are

[01:03:50] having a hard time now keeping up with SMCI are with Nvidia and you know it's like so like inside the

[01:03:56] chip sector that threat seems to be narrowing like I don't like have those returns just you know

[01:04:00] the after earnings I think the stock was down same with Marvel which is semi chip stock I guess

[01:04:06] and so you know it's like Nvidia is the only game left in town to keep dragging this thing forward

[01:04:12] stocks up a tremendous amount the the volatility is extremely high you know higher it gets I think

[01:04:18] the harder it is to keep justify paying for those calls because they're just so expensive and

[01:04:22] you know it like leadership is dwindling so um gun ahead you have to bet that oh they not some cool stuff

[01:04:30] but it's not like you know we just tripled our earnings unexpectedly kind of cool stuff and

[01:04:36] and I think we you know likely leads to some short term correction uh I think any dip gets bought

[01:04:42] because Nvidia is probably still considered the best stock of all stocks uh maybe rightfully so um

[01:04:47] I'm not here to say that I'm just simply here to say the band is very stretched so just

[01:04:52] just a couple more here as we wrap up um this is something we've talked about before

[01:04:55] you know the idea of vixx forations and the impact they have what are you showing here

[01:04:59] yeah there are you know um we we've done some research and highlighted certain moments in time

[01:05:05] where the vix really wags the market dog and I don't know if you remember but uh into

[01:05:12] this happened just after we talked in our our last topics um vixx was before options exploration

[01:05:18] last month and there was this crazy day where the vix suddenly went from 14 to 18 it just

[01:05:24] blasted off um and it violently reversed uh vixx sellers came out of the woodwork and sold it off

[01:05:33] a similarly thing of slightly as less magnitude happened in January uh where the vix went from

[01:05:39] you know 12ish and that neighborhood up to you know about 15 so the last couple of vixx

[01:05:45] aspirations have brought I think a lot of rolling so that's traders who you know are long vix calls

[01:05:52] for this exploration they rolled them out to April and that supplied demand mechanic has

[01:05:59] opened up shifts for volatility to move uh writ large um and with that you've seen some pretty

[01:06:05] big S&P moves so in this case we had the vix 15ish last on my check right now if CPIs

[01:06:13] of who cares tomorrow which is probably what's going to happen then vixx probably comes down a little

[01:06:17] bit uh but then vixx aspirations on the morning of fmc so you get a lot of weird movement the Tuesday

[01:06:24] of fmc so we're gonna have the inbidio deal on monday then you got the vixdial exploration which has

[01:06:31] been a a boost for vixx at least in the short term uh into fmc and it gets weird because

[01:06:38] there's always a vent volatility priced in around the fmc itself so the people really want to short

[01:06:42] vix aggressively if there's any kind of spike into fmc so there's there's just a cadre of events

[01:06:48] that line up here where forget your view on events there's just a lot of positions shifting

[01:06:52] balls changing a lot a lot of exploration remember the top we talked about the huge size of positions

[01:06:58] expiring and so you know i think these are times for turning points and really jumpy movements in

[01:07:04] markets that can you know change the pace of change or lead to a shift in in direction at least

[01:07:11] in the short term um and so you know um these are all significant events uh there's a lot of data

[01:07:21] here that again points of things being very stretched and uh and the trigger points for change

[01:07:26] are all lined up here in the next call week what's uh what are you looking at in this last slide

[01:07:31] on this napping sspx time and price yeah the way that we distill all this for subscribers and

[01:07:38] readers of our analysis is like to just bake it down to simple price zones and um so you know

[01:07:47] i need some more mapping this out we're considering two things we're considering significant

[01:07:51] options levels and then we're considering how changes of implied volatility will

[01:07:57] invoke movement in markets so if you've heard of these terms of game of an charm like

[01:08:02] we we basically just bake all those concepts and boil them down into these easy to digest

[01:08:08] his own so if you think about it right now back to those that original chart that I had of where

[01:08:13] the big strikes are positioned we're in this very neutral kind of chop zone around 5,100 you know

[01:08:18] maybe we go up to 51 50 but it's really in that in that general zone and the options market

[01:08:24] positions are there I think that over the next week you have to consider that to be an area where

[01:08:30] we could shift up in that zone but then just easily drop back down the next zone zone you know

[01:08:34] back towards 5,500 just as a function of zero dt flows coming in out of the market which move the

[01:08:40] markets a lot and you need these bigger triggers to unlock higher prices you know at at later dates so

[01:08:47] in this case what happens is if we break 51 100 vols likely to spike even if it happens tomorrow

[01:08:53] particularly the CPI and then I think we get enough of a vol spike and enough shift in flows that

[01:08:58] we immediately go down to 5,000 and that becomes the level to watch into FOMC next week

[01:09:05] but if we go below 5,000 we're probably a little oversold and I would look for a kind of a pinning

[01:09:10] back to 5,000 so that's the downside that we have this we call it the volatile neutral girl like you

[01:09:14] break 5,100 and it happened briefly last week right we went from 5,100 we just violently went down

[01:09:21] to 50 like 50 area 50 60 area and then the next day the dip got really bought but there was a lot

[01:09:27] of volatility triggered by that move to the upside we have all these big call positions at 51

[01:09:33] 515 spiders 5200 in the SPX and that is a resistance point for markets

[01:09:42] and that resistance point is unlikely to shift until Friday's expiration in our view

[01:09:46] and so you know there's like this kind of if you look at the distribution of prices like

[01:09:51] there's the chance of like a little bit of drift positive here this week there's a better chance

[01:09:55] that if we break 5,100 particularly CPI is a little hot that we can really saw off kind of sharply

[01:10:00] and then when we transfer transferred to next week march op x clears out a lot of the positions

[01:10:05] so volatility is more likely to come in right there positions since positions are reduced there

[01:10:11] can be more market movement you add in the Nvidia vent and the FOMC if we clear 5,200

[01:10:17] we're likely to really shift up to 5,200 pretty quickly once we clear those events

[01:10:24] and then to the downside you know there's like I said before there's a little path dependency

[01:10:28] here if we're in the 5,100 area and Nvidia is kind of a nothing done and FOMC is a little hawkish

[01:10:34] you know then we then that that downside can really open up so that's kind of how we lay out

[01:10:40] this again there's when I say it's path dependency meaning the timing of things matter a little bit

[01:10:45] but this is generally how we're mapping out prices so if you want to just state this another

[01:10:50] clear way on your 5,200 is like neutral under 5,000 is risk off and if we break to the upside 5,200

[01:10:58] then that's a risk on and then it's a real big signal that we're probably going to invoke another

[01:11:03] you know significant like either way with all the events we have between now and our next

[01:11:06] episode we're definitely going to have a lot of talk about well I've a lot to talk about so

[01:11:10] you know we can very clearly write on the side that Brent will write it now Brent is looking for

[01:11:15] some consolidation here if that's wrong then I'll say it was Jack that was calling for that.

[01:11:19] Jack calls for call about speed out Jack calls for consolidation

[01:11:22] there would no bait in fact I know how many of this works

[01:11:25] on yeah so it's going to be fascinating there's a lot of big triggers that are happening now

[01:11:32] you know I would just also say like if you're a longer term holder here when you're looking at

[01:11:38] these implied balls you're thinking about call overriding and things like that I think that this

[01:11:41] is when it gets more interesting when the balls really go crazy you know they go to these levels

[01:11:45] that just aren't sustainable and maybe don't want to sell your stock but these are the moments where

[01:11:50] hey maybe I want to buy some puts or I want to put some collars on or you know different trades like

[01:11:54] that that can help protect some of those gains that you've gotten over the last couple weeks because

[01:11:59] like even though the VIX is high like puts puts are not all that expensive you can you know yes

[01:12:04] you can add some VIX hedges that you know VIX is at 15 but you know the fact of the matter is

[01:12:10] you've probably gained a lot in just the last couple weeks so you know spending 1% or whatever it

[01:12:15] is on some hedges here and this next week is not going to be that much of a short-term drag

[01:12:19] interview or portfolio right so I think that's the takeaway when you're not necessarily when you

[01:12:25] have a view that's a little bit longer than 30 days I think that's that's probably a good note to

[01:12:27] wrap up on for anybody who wants to learn more about the data behind this you can go to spakeama.com

[01:12:32] for anyone who wants to follow Brent's insights you can go to spakeama on Twitter if you want to

[01:12:37] just basically get podcast clips and zero insights you can follow me on Twitter I had a track to

[01:12:42] the font and we'll see everybody next week or next month actually sorry. Thanks so much

[01:12:47] sir this is Justin again thanks so much for tuning into this episode if you found this discussion

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[01:12:58] comment we appreciate. The opinions expressed in this podcast do not necessarily reflect the

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