The Two Sides of Volatility | Inside the January Options Expiration

[00:00:00] You don't go from still water to a boil, right? You got to go simmer boil and that's really what the analogy is here. The volatility space is simmering even though I think it's still underpriced a little bit and it'd be very easy to go to a boil. And that chase right now is absolutely dead and a lot of these quantum stocks are going back to the depths at which they came.

[00:00:22] The thing that jumps out at me is that what the options market is pricing in doesn't seem to snap with reality in terms of what the risks are. And that could go to the upside. The options market isn't always necessarily the trigger, right? But it adds on, it's like the turbocharger for a lot of these moves. And then what happens is when you get a big move, the options complex grows so large in terms of the hedging flows that it then becomes kind of the, it then dictates market movement. And I think that's kind of the environment we're in right now.

[00:00:50] 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. 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. No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of clients of validity capital. So Brent, we're finally seeing a little bit of volatility. We've seen, I think you just told me before we got on, a 5% decline. We're seeing a little bit of risk off here, maybe?

[00:01:20] A little bit of risk off. We seem to be on the cusp between consolidation and risk off. And I think that the triggers are clear. We got, we had PPI this morning, we got CPI tomorrow, we got FOMC, we got inauguration. There's a whole bunch of triggers coming up.

[00:01:35] And my question, as you can see in my presentation here, is that the options market has not yet started to price in elevated levels of volatility, despite the 5% drawdown that we've seen from recent highs. So it's a little bit of a strange market. Are you going to make like Mavga hats or anything to go with this? You know, that's not a bad idea. Yeah. Some Spock Gamma merch maybe with the Mavga on the top?

[00:02:02] That's what the world needs is a Spock Gamma to put out some merch. For sure. By the way, I've seen some nice excess returns merchandise. Maybe we can put a VIX hat up on there. Yeah, yeah. We did a little bit. I think me and Justin are the only people who ever bought it, but it's all right. Yeah, and congratulations on your success too. I know you had Lizanne Saunders, big name, and the podcast has grown. So congratulations. Thank you so much. Yeah, the key was we got me out of that interview and got Matt and Justin in there. So that lost it up to me dramatically. That's right. That's pretty much what it takes, I think.

[00:02:32] So we should make a Mavga face cover for you maybe. We should do that, exactly. But it's interesting going back to the decline. I think we get numb to this whole thing. We've had a 5% decline and all of us are like, oh, look, this is a major situation going on here. We've just been used to the market going up for such a long time. Yeah, that's exactly right. Right. And we're trying to draw parallels, and you were asking me kind of like what the theme of this one is. And sometimes you just look through, I mean, I must look through 100 different charts,

[00:03:02] and you just sort of sit there and start to go. The thing that jumps out at me is that what the options market is pricing in doesn't seem to snap with reality in terms of what the risks are. And that could go to the upside too. I mean, if we get a cool inflation reading and then Trump says, I'm going to wait on tariffs and whatever, then who's to say the market doesn't rip 2%, 3% almost in an instant, right? So the volatility seems to be underpriced.

[00:03:25] And I think that true to like the situation in August or other periods where the table is set for a big vol spike. And if you get that little trigger, we're poised, right? Because the VIX doesn't tend to go from like 10 to 40. It tends to go from like 20 to 40. And I don't know if everyone's like scratching their head at what I just said, but, you know, the VIX tends to, it doesn't jump that much, right? We don't get that instantaneous 10 to 40 jump. We tend to get like a 20 to 40 jump. Obviously, VIX has to go to 20 before it gets to 40, but hopefully you understand what I'm saying.

[00:03:55] Yeah, and to your point, like obviously we don't know if any events will be major events or not, but we do have a lot of events on the horizon here that could potentially cause volatility one way or the other. Yeah, without a doubt. And, you know, there's a lot of things that are shifting here in the next couple of weeks in particular. We have the whole interest rate regime, you know, coming under fire a little bit. And then we go into earnings and there were some really bizarre NVIDIA moves we're going to talk about here in this presentation as well. So, you know, there's a lot going on right now.

[00:04:25] And I think people should really respect some vol premium in this environment. And right now they're not, right? There's no kind of volatility premium in the market. And to me, that's a red flag. So before we get started, we, as you mentioned, we do have probably a bunch of new viewers here to the channel from Lizanne Saunders, wondering who these two guys are that weren't even in that interview. But one of the things we, the reason we do this podcast is because I've learned as a long-term investor that there's a lot going on behind the scenes in these option markets that explains a lot of what I see on a day-to-day basis.

[00:04:54] And one of the examples we've used in previous podcasts is what happened with COVID. You know, when COVID came on the scene, a lot of us were saying, why is this market not going down? And it just wasn't going down. Things were getting bad in Italy. Things had already gotten bad in China. It just wasn't going down. We had an options expiration. And then everything, like all hell broke loose. And it's impossible to say that what's going on behind the scenes with option flows was not what caused that. Yeah.

[00:05:19] And I think that's the, to your point here, is that it's a macro framework. We're looking at rates. But if we start to move south and then all the, you know, puts that are in place and VIX calls and things like that start to gain a ton of value, then options become the driver. It's like the baton gets passed from kind of the macro issue to vol trading. And on your point here, you can see the aforementioned high, right, into the COVID crash of February 2020.

[00:05:49] You and I were talking about this. You obviously look back in time and go, oh, man, remember it was obvious that this sickness was kind of taking over the country and people weren't, or world, and people weren't really respecting that. And the market didn't seem to react to it. And then we get February OPEX and then, bam, the market drops like a rock. And it drops for nearly one month straight until March 2020. And the low in the market was the day after options expiration, a huge options expiration there in March of 20. So that's the number one options example of all time.

[00:06:17] But we have a lot of recent times, too, when market highs and lows, recent highs and lows, or local highs and lows are made around big options expirations. And so that's why we do, as you mentioned before, like to watch these flows and think they can be informative of forward returns. And you've got a great chart in the presentation here that shows just how much bigger, how much more people are using options. And how much, so obviously if these flows are important, the more people are using options, the more and more important they're going to become. Yeah.

[00:06:45] And sorry for the chart flickering there, but here it is. This is options volume, total U.S. options volume over the last 30 years or so, 50 years, I guess. And what you see here is an explosion in volume starting in 2020 when Robinhood offered commission-free trading and we got electronic trading on our cell phones, blah, blah, blah. And then we had zero DTEs launched in full form in 2022. And so you could just see it's really been a convex growth in options space.

[00:07:12] And we don't see any slowing of that as new products come online. One of the interesting ones that recently came online is IBIT, which is the Bitcoin ETF, huge options complex. It's one of the top 10 options names now out of nowhere, right? November didn't exist and now it's this huge options trading complex. So the options positions continue to grow. The activity continues to grow. And I think that the hedging impact grows in kind. Can you explain a little bit about that hedging impact?

[00:07:38] Because that's what these next slides get into is how these flows actually work behind the scenes. Yeah, that's right. So the way that this works is there's 18 different options exchanges and 90% of the volume on those exchanges when you or I go and put an order in as a retail trader or institutional trader, 90% of the volume is done by market makers is what the data has told us. And so anytime that we put an order into the exchange, it goes down to one of the exchanges and it's a market maker that's sitting there waiting to buy or sell.

[00:08:07] And so those positions that those dealers are buying and selling or market makers are buying and selling, normally they're not all that big, but in certain products and certain times the positions can grow very, very large. And so in this example here, if you and I both buy 10 lots of AMC calls, it's not that big, right? But if everyone on Wall Street bets or everybody on X decides to go and buy AMC calls, well, guess what? Then suddenly you have a lot of exposure. So in this case here, you go, oh, I just sold 100,000 AMC calls.

[00:08:36] Well, how much hedging flow would that example dictate? In this case, if you have 100,000 calls at a hedge ratio of 50 shares or 50 delta, that means they have to buy 5 million shares of the AMC in this particular example. So for those of you who may not be options in the options space, but you're just a typical investor, you can appreciate that 5 million shares of stock in this particular example is quite heavy.

[00:09:01] And this type of size was stuff that we saw, particularly in 2021, but we see it in rolling kind of vectors of attack, we like to call it. Like quantum computing, right, was the big one at the end of December. We have a chart on that where you suddenly get this surge of options volume, which just means that there's tons of shares that have to be bought or sold in order for market makers to maintain hedges. And then obviously that 5 million shares we mentioned here is just the initial hedge.

[00:09:27] That hedge has to be continuously maintained as time passes or as the underlying stock goes up or down or as more contracts are bought and sold. So that is, in essence, the transmission mechanism from options trades into movement in the underlying stock. Yeah, I think that original point you made is really important, which is if I'm buying Apple, the person on the other side of that transaction may have the opposite opinion of me. It's somebody who's willing to have that opposite opinion.

[00:09:54] If I'm buying an option, the dealer on the other side does not have that opposite opinion. They don't want to take on that risk. They have to get rid of that risk, and that's what kind of leads to all of this. Is that right? That's exactly right. Their responsibility as a market maker, and this is the deal they make with the exchanges, they're going to provide liquidity. So they don't necessarily have to offer you a price that you like, but they do have to offer you a price. They have to be willing to buy or sell.

[00:10:21] And so they're sitting there, and if everyone just decides to start buying contracts from them, they have to sell those contracts, and then they can be short the stock in essence. And maybe they don't want to be, right? So they would then need to sell shares of stock in order to hedge themselves as kind of a passive liquidity provider. Yeah, and if you think about the success of people like Ken Griffin, I mean, obviously, these guys are very, very good at what they do. Yeah. There's a lot of money to be made in this, and they're very good about how they price these options. Yeah, and it's kind of the interesting thing here, right?

[00:10:49] I mean, there's not that many big market makers anymore for a variety of reasons. Number one, the technology you have to have is massive. Number two, the compliance and legal setup and framework that you have to have is cost prohibitive. Now, like, the regulatory regime is so big. So, you know, you got five big market makers like Susquehanna, Citadel, Wolverine, you know, Jane Street. It's like the list is not all that big.

[00:11:13] And so the other thing that's interesting about that is if you think about how much flow these guys have now and gals, they probably have a pretty good idea of which way, you know, the tea leaves are blowing or whatever the saying is, right? They kind of must – they must have not inside information, but they clearly know which way the flows are going. And I think that probably helps their position oftentimes. So as we head into – so we do have an options expiration this week. We always do these on options expiration weeks.

[00:11:40] And as we head into this, this is where these flows become a little more tricky. So we have a lot of – you know, we've had a lot of these positions hedged, but some of those positions are going to go away this Friday. So can you just talk about how that works? Yeah, the way that we look at this is that the third Friday of every month is the biggest options expiration typically. And so we look at this as a cycle. On options expiration, so on Friday, we're going to have a whole bunch of positions that are removed. And with that, any associated hedges are removed as well.

[00:12:07] And so that means that any kind of options price action that was being dictated by big positions in the associated hedging flows is likely to go away. And then positions start to build up into February 21st options expiration. Now, not every options expiration is massive for every single name. In this case, we have a very large single stock expiration, which is unique because in January, we have a lot of leaps. So the thing about Nancy Pelosi, obviously, she likes to buy these long-dated January call options. On tech stocks, right?

[00:12:34] So it's people like that that build up these January positions. And then those January positions will expire and they'll put new ones on for next year. So this is a big single stock expiration. And so, you know, there's idiosyncratic risk in different names. And I say risk just means that, you know, if you look at like a Tesla, for example, there's big, huge positions expiring at the 400 strike. So that this expiration may mean a lot for Tesla, whereas in the S&P, it's not as big as the December, which was the biggest expiration of all time. So at any rate, we view this as a cycle.

[00:13:04] The positions build up along with the hedges and then they expire on the third Friday of every month. So as we transition to the single stock slide, I'm wondering, do you know what positions Nancy has on for 2025? Is she still big in the tech leaps? I haven't checked up on Nancy Pelosi's portfolio recently. I did see there were- She's the greatest options trader of all time, right? Yeah. There's some truth to that. And I did see there was some funny charts going around about her ETF versus the inverse Jim Cramer ETF and which one performed better at the list.

[00:13:33] I think she still outperformed the inverse Jim Cramer. Yeah. Doing what she says is outperforming, not doing what he says, basically. Yeah. Yeah. So, you know, you talk about- She does have a little bit of an edge, maybe. Maybe some information that she's- I would want to use the word inside information. Yeah. We could call it an edge, maybe. We could call it a- Edge is good. I don't want- Not that Nancy Pelosi is going to watch this, but yeah. Sorry, Nancy. This is a fancy new graphic I made. It replaced our old one.

[00:14:03] You are the graphic master, by the way. You do some good graphics. Well, thank you. I appreciate that. So this one is a nicer way of displaying exactly how big this options expiration is, and it gives you an idea of the relative size of expiring. Now, that big number there, about a trillion dollars of single stock expiration, is about five times bigger than the size for single stocks expiring in December.

[00:14:29] So it's much bigger, but it's still, as you can see, only a fraction of what we get expiring in S&P 500. So the S&P 500 is mainly SPX and SPDR flow. So, you know, that is the most dominant options complex. You know, writ large, it's always huge, and I think that's why we focus so much on the S&P 500 here is because those options flows are so big. But, again, the key here is that this is very big single stock call expiration here coming up for this Friday.

[00:15:01] That this will be more impactful for. The other is a lot lower than December, though. So December was much bigger at the index level? Correct. Yeah. Yeah. Much bigger overall. And this is measured by Delta Notional. You'll see that some of the other graphics that come out and numbers come out, they measure an open interest notional. We don't really like that metric. We think it kind of doesn't give the weighting, the appropriate rating between calls and puts. So here you can see that for the single stock side, you know, there are a lot of these calls that gained value over the last year.

[00:15:29] Obviously, even though the market's down 5% in the last month or so, it's up substantially from last January, right? And so that helps to build these call values up. And then the last thing I just want to flag here is the other indices is the NASDAQ and the Russell. And you can see how small that option complex is relative to the S&P, right? I mean, it's literally a flea. And so that is, again, why we tend to focus at Spot Gamma on the S&P 500 when we're talking about index flows.

[00:15:55] Are there any implications to the fact that like single stock is bigger now in terms of if we think about these things as potential reversals or we think about what might happen, does that matter at all that this is like a bigger single stock expiration and like December was a bigger one at the index level? I think that there are a lot of long calls heading into this expiration. And so if there is any selling, particularly with CPI tomorrow, that we could get more volatility kind of is something that I think is a little bit of an embedded risk.

[00:16:22] I will say that I thought last year that it could potentially cause some downside risk. And the market was very stable in January, right? But then in January of 2022, we had an extremely violent drawdown in January. We were down 12%. And I think that the options market was a big reason for that because we had similarly a huge January expiration. So, you know, I only have two data points on the major impacts here.

[00:16:48] But when I look at particularly Tesla, for example, you know, half of its gamma and it's a lot of gamma is set to expire at 400. So the stock's trading 408 right now. And, you know, we're tethered to that level, right? I think we're going to lose that tether with this January expiration as a major example. So, again, the risks are sort of idiosyncratic. If you go to spotgamma.com slash OPEX, you can download a spreadsheet that details all of the biggest names. So you can go and check that out. So this next slide gets to the same idea, which is how big this single stock expiration is in January relative to the others. Yeah, that's exactly right.

[00:17:17] And the key here with this is to show how big this January expiration is on the single stock side. And you can see you have to go out to the March expiration, the next quarterly expiration to see, you know, any kind of other material size. And so, you know, this is really big. This is the main focus is where most of the gamma is and most of the positions are right now in the single stock space. Before we talk about this next one, can you explain this idea of positive and negative gamma? Because I think that's very important in terms of whether we could potentially have more volatility or less.

[00:17:44] Yeah. So the why positive and negative gamma matters and positive and negative gamma differ across different products that you look at. But the idea is that when you have a positive gamma position, what that tells you is that if you have an option position on, that means that you are long options, which means that if you get market movement, that's great, right? The stock goes up. In theory, your options make money are down. Those are both directional moves that you make money off of, right?

[00:18:12] If you hold a portfolio of options as a generalization. So the way that you hedge a positive gamma position, let's say your long calls, is that when the market starts to rally and your calls start to make money, you sell stock into the rally, right? And then when the market comes down, you buy that stock back.

[00:18:31] And so you can imagine that if you have on millions and millions of call positions and you're buying and selling millions and millions of shares to hedge that position in a positive gamma environment, you are throttling volatility. So you're selling tons of stock when the stock goes up and you're buying tons of stock back when the stock starts to come down. And that, as you can imagine, would kind of keep volatility a straight jacket, right? Positive gamma, what that equates to at the end, and we have data that supports this, positive gamma means that we have less volatility.

[00:18:59] Negative gamma on the other side of the equation means that you're short options. So in this instance, let's say you're short a call. If the stock starts going up and you're short calls, what do you do in a negative gamma position? Well, if you're short the call, you got to buy stock. And if you're buying millions of shares of stock to hedge, you can imagine that you would make the stock go up faster, right? So you get bigger, more violent swings in a negative gamma environment. And so that is why we pay so much attention. And we're going to talk about this shortly, what our position is.

[00:19:26] When we look at the S&P 500, are we in a positive or negative gamma environment? It matters to volatility in the forward returns oftentimes. In single stocks, right? Is everyone buying those AMC calls or buying Tesla calls, right? Because they want to chase. In those environments, you see much higher volatility when dealers are short options or short calls, right? Versus when they're long options. So the idea is, are these dealers dampening volatility or are they exacerbating volatility? That's right. In positive gamma, they're dampening. In negative gamma, they're exacerbating. Perfect summary there. And it matters.

[00:19:56] And it's different on a stock-by-stock basis, right? The predominant flow in the S&P 500 is call selling on a normal basis, right? People tend to sell calls against the S&P 500. Those were the biggest kind of systematic ETFs are like JEPI or there's the famous JP Morgan Caller Fund. They sell calls systematically and buy puts. So anytime the market is rallying or is up near highs, we're in a positive gamma environment with positions, options positions that tend to suppress volatility. And then when the market is crashing, usually people own puts for protection.

[00:20:25] So if you own a put jack, the dealers short those puts. And the way that they hedge is by selling stock as the market goes lower, which exacerbates volatility. So that's why that matters. And that's why we pay so much attention to it in the S&P 500 and across single stocks as well. So in this case, if you want to talk about when do we regain the positive dealer gamma regime and have some relative safety in the market, it's not really until we get up over the 6,000 strike. S&P is trading around 5830 right now.

[00:20:55] And so if you just look at it, and we're going to show this in a moment, the volatility that we've had once we popped under 6,000, the moves have widened out substantially, right? On average, we had 1% moves over the last 30 days. And so those are big swings versus if you think about into December into FOMC, we had a very big positive gamma environment and the market was hardly moving at all, right? In fact, we saw the lowest realized volatility that we've had since pre-COVID. So these are the effects that you can see.

[00:21:22] And again, if we get a nice CPI number tomorrow, I think we easily rally to 6,000. And then things can get pretty quiet pretty fast on the index side. But as long as we stay under this 5,900 area in particular, then the threat or the specter of volatility is kind of looming. Yeah. And I think this yellow area you have here, which shows us where we are right now, it's as far to the left as maybe we've seen in this podcast, maybe one other time. Yeah. But this implies we could see more volatility here.

[00:21:52] Yeah, 100%. And the idea here is our gamma index, which we put out every morning, is on the x-axis. And so the more gamma, the more positive gamma we have, the less volatility we have. And the y-axis is forward one-day returns. So more positive gamma means tighter trading ranges. And this is, again, a forward volatility estimate. And when we get a negative gamma or lower gamma complex, we have higher volatility. And what's different here is that we've had this drawdown, right?

[00:22:18] We have a similar drawdown in the beginning of August where we didn't have this kind of snap reaction to something, right? We've had just a wearing away of positions over the last couple of weeks. And so to your point on not seeing this before or seeing this recently, it's because we've kind of like ground down into this position. And the theme of this presentation is really going to be like, okay, great. You know, we've ground, we've worn away this positive gamma. We're in this negative gamma environment. But there's no vol premium, right? Like volatility really hasn't quite reacted in a way that we think it could.

[00:22:48] And so, you know, this is emblematic of the embedded risks, I think, that we have in the market right now. And we've learned in previous episodes that a lot of times that arrow will shift even more left after the expiration as things clear out. I mean, is that what we would expect to happen here too? Yeah, that's right. And it's a great point, Jack, that when we get into these expirations, particularly if we've had big moves, either higher or lower into expiration, that clears out a lot of stretched options values.

[00:23:13] So historically, if you think about us crashing, right, imagine the VIX was 40 into Friday's expiration and the S&P put values are massive. Well, that expiration is going to delete all those huge put positions off the books, right? And any hedges associated with those positions, in theory, short stock would need to be covered. And oftentimes that's why we see a bounce after options expiration. And so, you know, there's some path dependency in this type of environment in particular as to what the effect is because today things are relatively calm, right?

[00:23:41] VIX is at 18, 19. But we could very easily have VIX 25 by Friday, for example, if that CPI number is not one that the market likes. So in this next slide, you're looking at the idea that often these options expirations, in certain circumstances at least, can be reversals in the market. Yeah. And so it matters. There's a little bit of dependency of whether VIX expiration falls before or after options expiration.

[00:24:04] But the idea here is that we have about two-thirds of the time the market changes direction from the week into expiration to the week after. Now, this is all quite dynamic. What I mean by that is that there's a lot changing in the options market over the last few years. The size of volume is growing. The size of zero DT options is growing. You know, people change their hedging flows. Information gets out. People adapt and change strategies and things like that.

[00:24:28] So it's hard to have an apples-to-apples comparison over time in terms of what the OPEX effect is, right? But there is statistical evidence that shows that the market does switch performance, you know, change directional performance into and after expiration. So as we look at this next slide, we're looking at some of these previous expirations and some other market events, and we're looking at how the market performed as we went through them. Yeah. And in all this analysis, you know, like, well, what have you done for me lately kind of thing?

[00:24:56] And if you look at November expiration, you know, the market leg down right at OPEX, as you can see here. And then we rallied after. So that was, you know, you can put your finger on the low there. And then FOMC in December expiration was really interesting, right? Because FOMC was unusually hawkish. People weren't expecting that. But the market rallied immediately after that, even though it was a really nasty drawdown, right?

[00:25:19] And it was funny because Powell basically said, hey, I'm going to be more hawkish than you all expect or rates, you know, he said that they may be holding rates steady, right? And so the market had that negative reaction. Then we immediately rallied after. And I think a lot of that was due to options expiration. We have the huge JP Morgan quarterly trade that went on there at the end of December as well. And so, you know, there's a lot of reasons for these big December positions to clear out to help boost the market.

[00:25:48] And then as soon as we digested those expirations, now the market's, you know, dropped and, you know, has basically closed the election gap at that point, at this point. So in this last slide, before we move on to looking at what we talked about last time, Zero DTE has been, people have been talking about it a lot. And often when you see people talk about it, it's these YouTube videos that are calling for like some sort of Armageddon that's eventually coming because of it. But you're showing this chart. It has gone up over time. Yeah.

[00:26:14] And this is data we put together, which is a 10-day moving average. And what it shows is for the S&P 500, we're about 55% on average, zero DTE volume. And a lot of people say this is Armageddon or gambling. Most of the zero DTE flow is institutional. So it's market maker to market maker or hedge funds with fairly sophisticated strategies. It's not the retail punters that a lot of us think. You know, Jim Cramer in particular has been railing against zero DTEs.

[00:26:44] I think that is misfounded or misguided thought. And the other thing is that my data suggests that, if anything, it may cause mean reversion in the market. So I think a lot of times we have less volatility because of zero DTEs. And the reason is because if you buy zero DTE puts to start the day, you got to close those out before the day ends. And second, if you do think, what is the Armageddon scenario of zero DTEs? Well, they get closed at the end of the day by the fact that they're daily expirations, right?

[00:27:12] So whatever their exposure is, is gone by the end of the day. And so I think that really throttles or mitigates, you know, the sustained impact that these things could have. In theory, if everybody and their brother bought zero DTE puts on a rate away like right now, yes, the market would go down. But at some point, you know, you want to monetize those puts, right? And you don't want to be the last person to try to sell your puts if the market's really moving. So, you know, there's some reflexivity in how they get closed.

[00:27:37] If I see Jack, your huge zero DTE put buyer, and you start closing your puts out around one o'clock in the afternoon, the market starts to react. Well, I got to react too, right? Because my put only has three more hours left in the day, and I want to sell when vol's high, et cetera. So there's, again, that reflexivity that draws those people to close and chasing. And again, my belief is that zero DTEs really actually pad volatility. So as we look back at what we talked about last time, we're going to look at something we've talked about in many of the episodes, which is Tesla, how important Tesla is to the options complex.

[00:28:08] It is huge. The idea here was that Tesla, you know, right now, NVIDIA is the king. It's the biggest options complex, single stock complex, oftentimes bigger than the spiders. And I think Tesla is on its way to take over NVIDIA. We'll have to see if there's some, if this call remains true.

[00:28:32] However, Tesla did go up to around, what, 480, I think, in December OPEX or right around December options expiration, wherever we did the video. It's come back down to 400. And I have some charts at the end of this presentation that show why I think Tesla could start to really resume the rally. So I think that this one could still be on the books, that Tesla may just become the biggest options volume name. And I also, and I think that that could mean a lot for market cap. We talked about the low realized volatility.

[00:29:03] Again, this was lows in volatility, realized volatility that was starting to harken back to pre-COVID. So something that we haven't seen in five years, that was a real theme. And there was obviously this bullish seasonality that was occurring as well into the end of the year. And both of these things are interesting because this low realized volatility got snapped when Powell came out more hawkish than people were expecting. And so that he opened the door for some big market movement, but we still closed near the highs or all time highs right in the S&P 500.

[00:29:33] So it's weird that both of these things kind of came to fruition, that we had the vol spike and we still had the market close at seasonal strength. The other thing that we had were focused on was the end of year JP Morgan collar. We sort of hit this 60-55 area a couple days before the JP Morgan collar trade expired at the end of the month. But we did ultimately close a little bit before that.

[00:30:00] So I guess what I'm trying to say is that we were expecting maybe a little bit more of a pin due to the JP Morgan position. For those of you who don't know, the JP Morgan collar is a very, very, very large options trade that rolls every quarter. In this case, there was a bunch of calls at 60-55 that we think were helping to suppress a bit of volatility in the end of the year. And the idea is when the market's close to one of those prices, it can act as a magnet. It can pin the market. Yeah.

[00:30:24] And if you look at the end of September, we pinned to the dollar, 57-50, which is where that position expired. And then the position for December was 60-55. Two days before, we kind of rallied into that level, as you can see here. Right. So here's 60-55 up here. We rallied to that level. And then two days before, the market really kind of got chippy and started to fall south a little bit. Right. So I would have expected us, in all honesty, to pin a little closer at 60-55 given that position.

[00:30:54] But obviously, at the end of the year, there are a lot of different flows on the market. So on this next slide, you're looking at this idea that puts were cheap, which they were. And maybe some people who bought them actually did okay, given what happened after. Yeah. And it's an interesting theme that at the end of the year, puts were cheap. This was from Alpha Exchange. I thought it was very interesting that the idea was that this was a very low realized vol regime and implied vol seemed very low in underpricing move.

[00:31:19] Now, if you owned puts at the time we went into our conversation, you would have done pretty well, obviously, given the fact that the market's dropped a lot, that VIX has spent most of his time near 20 or in the neighborhood of 20 after Powell. Right. But it's interesting that we had this very low volatility pricing. And now the market is more volatile. And we still think that the pricing is relatively low. So there's a real theme in there. Apple valuations were very high. Thomas Pederfee was here saying that the market felt very overextended to him.

[00:31:48] So this was all what we're talking about in December options expiration. We were talking about how ridiculous the Bitcoin micro strategy frothy sentiment was. Bitcoin still hold up pretty well. We're at 96,000 still today. But this is down from 105. Micro strategy is up over 400 at this time. It's down to around 300 right now. So, you know, a lot of this excess that was in the market certainly came out. We were making fun of value, Jack. You said the value is starting to rally now.

[00:32:17] So I don't know if it's been like two days. So we can't get too excited. Actually, for me, pretty much two days is victory. So it's having a good day today. So that rally that I've been calling for for seven years, Brent, it's coming. Well, good for you. It'll feel better. But on that point, it was bad breadth, right? There was only it was it was Mag 7s that were kind of holding things together. There are Tesla, crypto a little bit, quantum computing.

[00:32:40] And if your investment thesis is that crypto and quantum computing is going to lead the market to new all-time highs, I think you're probably falling into the speculative speculation camp, right? And so, you know, there was all these anomalies that were lining up into that December options expiration. Then obviously, Powell kind of unleashed the hounds. What was interesting for me, this is totally outside of options, but thinking about that bad breath thing, I was listening to, I forget who I was, but someone was referencing earnings growth last year.

[00:33:09] And like the Mag 5, I guess inside of the Mag 7, had earnings growth of something like 30 some odd percent last year. And everybody else in the S&P 500 had like 2 or 3 percent or something. So you had like a massive gap between what the best companies were doing in terms of earnings growth and what everyone else was doing. Yeah. And there's been a lot of, you know, talk lately. I know you like to listen to that all on podcasts. Like I catch too. I find that to be, you know, very entertaining.

[00:33:35] And they were talking about the concerns of the concentration in the S&P 500, right? Over, you know, 30% of the S&P 500 now is just these top few stocks. You know, this has been a theme that you and I have flagged for, you know, six months now, this real concentration. And the question is, is that, you know, is this warranted? This is going to continue. You know, are these the names that you want to own? Well, I don't know if you want to own stocks writ large given interest rates or they continue going higher,

[00:34:03] but it still feels like those top five, six, seven names are still poised to do better than everything else, right? So I don't know that, you know, to the point on bad breadth, you know, those names are the names that are generating all the revenue and they still seem to have a pretty good path forward. So we're starting to get into valuations and off my realm of expertise. But, you know, this bad breadth and concentration is something a lot of people are starting to pay attention to now.

[00:34:28] And you're right about that because a lot of this, you know, a lot of their outperformance or you could argue all of it has been generated by actual fundamentals. It's not like the market is just bidding these companies up and the businesses aren't doing well. The businesses have done very well, which makes it a little more challenging than say it was in the late 90s where companies were going up for no reason. At least these specific companies have really good businesses that are doing really well. And just to the point on that, like it was Brad Gerstner actually that I took that stat from, I remember now.

[00:34:52] But what he had said is like if you look for this year, one of the things the analyst projections are saying is analysts are projecting a slowdown in the MAG7 growth in a, you know, the rest of the market coming up to them. And he was saying like a lot about whether from a fundamental standpoint, at least about whether you think this is going to be a good year for the market is whether you believe that's going to happen or not. Because you kind of need that those other companies catching up this year. Maybe if the growth rate is going to slow in those big companies, you need those other companies catching up.

[00:35:21] And this has nothing to do with options. But he was saying like that could be a play a big part in how this year plays out is whether that earnings growth does broaden out and those bit those smaller companies come up. Yeah, I mean it's a totally valid point. And, you know, it's – I guess what I – the thing that comes to mind here is what names do you want to own in a higher interest rate environment where interest rates are going higher? Well, you want to own the names that have the most cash and that are not as race sensitive.

[00:35:50] And that just plays into their hands as well. And, you know, so does breadth have to wind out for the market to continue to go higher? It feels like you want to say yes to that. But we seem to just have the MAG 7s go higher all last year and it never stopped, right? So, you know, it's a – I don't know how you play that out. We'll have to ask someone that knows value a little bit better than me like you. So I'm going to go with whatever you say here, Jack. It was just funny also reading this chart here.

[00:36:16] I forgot that we had this streak of – it was like 11 or 12 days of negative breadth, right? And that was the big record thing that we were talking about that's highlighted in this Nomura chart here to the point of, you know, not everything going up. It was such a bizarre market environment. You're sitting there scratching your head saying this doesn't make sense. And inevitably that stuff all snaps back, you know, to reality or mean reverts, right? The negative breadth and different measurements like that. And so maybe under a point here that this is all just a bigger term anomaly that this breadth does have to widen out.

[00:36:46] And you would think that if it does widen out, it's because all markets or all stocks crash and then we kind of rebase, right? I mean, I don't know. So now that I've got us off track and turned us into a fundamental podcast. Yeah, we lost half our listeners there with Brent Hotman. I've got us back on track. And this word volatility is not a word we've been able to use a lot. But if we look at what has moved from last time, we can use the word now again. Yeah. And so after our OPEX talk here, you know, we put it out, I think, on Monday or Tuesday. It was right before the FOMC.

[00:37:14] You know, volatility really did spike. And as you can see here, the VIX has largely been near 20 over the last month. The swings have gotten a lot bigger. And so we are realizing big moves. So in this case, we have 16% one month realized volatility or historical volatility, whatever you want to call it. But 16%, there's a famous options rule called the, it's called the rule of 16. If you divide implied volatility or realized volatility by 16, you get an estimate of one day daily moves.

[00:37:41] So that means that 16% realized vols, 1% daily moves in S&P 500. That's pretty good, right? Typically, I think historically, it's more like 60 bps is what the daily move is in the S&P. So we're in an elevated volatility regime. This is a correlation between one day VIX point changes and the S&P return. And you can see there's a pretty linear relationship here. And I highlighted the last five days because the market's gotten chippy. The S&P's gotten chippy a couple of days.

[00:38:08] And it feels like vol and VIX has sort of lagged. And I guess you can make an argument here that the volatility response has been fairly muted. You can see that there has been some bigger relative VIX moves, given that the S&P dropped on here.

[00:38:24] And the reason that I really want to show this chart here is that if you look to the left of this, when you start to get past 1.5% drawdowns in the S&P, start to get more towards 2% drawdowns, you can see that there's some convexity in the way that the VIX responds, right? We're on this cusp. We have this negative gamma regime right now where 2% moves or that 1%, 1.5% plus drop in the market is we're on that cusp, right?

[00:38:52] And I think if we get a hot CPI number tomorrow, we'll see that kind of a big chunk down. And that's where the VIX really starts to go convex. So at the beginning, I said, you know, we don't jump from 10 to 40. We tend to jump from 20 to 40. We're kind of at that VIX spot where we could really see that big VIX pop. And that's the real point of this chart, right? We're in this kind of crashy environment. If we get the right trigger, then I think that really comes to fruition. And that's kind of the nature of the VIX, right?

[00:39:21] Like I'm thinking back to August. You know, most of the time the VIX mean reverts back down. Like I'm thinking about August last year, we had that big spike and it came right back down. But like when it gets going, it can really get going. That's right. You don't go from like still water to a boil, right? You got to go simmer boil. And that's really what the analogy is here. The volatility space is simmering, even though I think it's still underpriced a little bit. And it'd be very easy to go to a boil. So, you know, in August, it was the yen carry trade, for example, that people are fingering

[00:39:49] as a reason for volatility spike. But in this case, if CPI comes in hot, for example, or Trump starts with tariffs or, you know, who knows? There's a bunch of mini triggers that could happen here over the next two weeks. Then we easily see, I think, a pretty large vol response. And everyone's going to be sitting there going to be like, you know, talking about how big the VIX jump was. So, you know, we're at that point. Doesn't mean it fills, but there are times in the market that are much riskier than others.

[00:40:14] And I would say that this is a, you know, significantly higher risk than what we had in the market even a week ago. So on this next slide, you're looking at the same idea. Vol is sort of bid, at least. Yeah. And the idea here is just week over week, really, the shift in one month S&P skew. And so what you just see here is that it, you know, there's no tail risk here really getting bid, meaning that this green line would curl up a little more for these downside strikes.

[00:40:40] There's been a volatility shift higher, but it's pretty symmetric across the curve, which is just telling me that this is just reflecting to higher levels of vol, right? Meaning that we now have 1% daily moves. Okay. Well, volatility has got to reprice a little bit, but there's no shift in the actual skew or shape of this curve at all, which tells us that people are suddenly really bidding up puts or really bidding up calls. It seems very asymmetric here.

[00:41:06] And to me, that again says that people really are not pricing in any type of tail move at this point. And one of the, this next chart gets into this, one of the side effects of rising volatility, right? Is it now more costly to hedge my portfolio than it was before? Yeah. And what this is from Bloomberg, it shows, one month, 25 Delta put implied vol. 25 Delta puts are a nice out of the money hedge, right? If you're just going to slap a hedge onto any portfolio, you go, okay, let me start with looking at 25 Delta put. And what you see here is the implied volatility level for that. So what's the price of the put?

[00:41:36] And what you see is, I know it's a little hard to see, but you can see we're right here. And we've had a 5% drawdown in the market over the last about two weeks. So this is a pretty good drawdown. But what you see is that the relative level of the implied vol for that put is kind of near the lows of the last five years. This goes all the way back to 2020. So, you know, earlier we were talking about fairly muted implied vol in the first half of this year, that put vol. Things have gotten a little more volatile in this second and third quarter of last year.

[00:42:05] But right now, again, there's no sign that there's a lot of bidding for these puts, right? Which is interesting given the fact that the rate regime is starting to shift a little bit. And I also think, you know, Trump taking office, we don't know what he's going to do in terms of tariffs and some other things. And I think that maybe there's this idea that he's automatically going to be bullish for markets. I mean, he used to love to talk about all-time highs in markets, right? But I don't know that necessarily just because he takes office, the market needs to rally,

[00:42:34] right? And I kind of feel like there's a little bit of that idea or that sentiment that he takes office so stocks just go up. I'm not sure that happens, but in my mind, I feel like there's some correlation to him taking office when people feeling like stocks should go bid because of that. It's really interesting because he's going to hit the ground running this time. I mean, it's one thing you can tell. He's going to be doing a lot of stuff right away. And to your point, it can have both effects. I mean, some of it could be great for the market and some of it could be terrible for the market. It's going to be interesting to see, like you'd think that would lead to at least some degree

[00:43:03] of rising volatility because we really don't know what's going to happen. And we're going to be having events on both sides potentially. Yeah, 100%. And that's the point. He's going to do something which is likely to invoke volatility. And there's a real regime change in DC. And so the effects of that you would think would create a little more event vol or volatility premium as opposed to sort of less. Here is the VIX, which is the vol of vol, people call it. Basically, it's just measuring.

[00:43:32] It's the VIX on the VIX. And the point here is that if people were demanding VIX calls and there was a lot of hedging there, then you would see the VIX likely go higher. In this case, again, we're elevated, right? But we're not even at year-to-date highs, or excuse me, at one-year highs, which is a bit unusual to me, again, given some of the upcoming issues, right? Jan FOMC, inauguration, CPIs, et cetera.

[00:43:59] So again, this is simmering, but you can see what happens in a spike, right? This can go, this VIX index can go from 120 to 140, 150, up towards 200 in a heartbeat. So this is the risk of going from the simmer to the boil. I'm just curious, do people actually hedge? Like, you know, you'll see like with an FOMC, you'll see hedging, you know, for that specific date. Is the inauguration like that? I mean, I wouldn't think so, but do people hedge the actual inauguration date? Do you see signs of that? Well, so inauguration is on Monday, right? And that's MLK day.

[00:44:29] So the market is closed on that date. And so, you know, we don't see a noticeable vol bump for that. We definitely see a vol bump for CPI and then for FOMC. So, you know, there's not a clear, at least of this moment, a clear inauguration hedge, which maybe you'd see on Tuesday a little bit. I also think once we get through CPI, that could just dictate so much of what people may think is going to happen, right?

[00:44:55] If the CPI is hot, then, you know, vol across all expirations is likely to surge. So what are we seeing in this next chart? A laggy equity vol, you call it? Yeah. And so I mentioned before, we go through all of our charts and we, you know, we put together these themes and the theme was vol seems underpriced. And I always love to find datas that confirm my bias. And so this is from the CBO. This is a recent report, which just shows, and I want to highlight this column, which is implied vol minus realized.

[00:45:23] And what you see here is that in the S&P 500, this number is negative, which is essentially just telling me that realized vol has been moving more than the market is pricing in going forward, which is unusual. Usually what happens is you look at implied or realized vol, so how much the market has been moving. You apply a little bit of a premium on that for uncertainty. And so typically implied vol is higher than realized. So right now it's lower in the CBO flag. This is unusual. This is true both in the S&P and the Qs.

[00:45:52] Interestingly, in the Russell space, vol is a little bit higher, but, you know, this is hardly screaming. So the CBO is sort of, I don't want to put words in their mouth, but they seem to agree with this idea that vol seems a little bit underpriced. If we're going to start doing bias confirming slides, I'm going to have to do like value stocks will ride again. I can give it to me to edit before the presentation. I'm going to have to like slip it in there just to see if it doesn't be good for me. I think that's a good idea. 100%. But getting us back on track, correlation is something we've talked about a lot.

[00:46:21] So here you're looking at the correlation of the major assets. Yeah. And the idea here is that obviously right now it's the rate of change of rates that is concerning people. So how fast rates are changing is the risk. And so, you know, there's a lot of correlation there. But what they also show is that TLT implied vol, so it's a long bond ETF, is very laggy. It is not really responding. You can see here that essentially what this is showing you is that there's no demand for puts in TLT at this time compared to previous market drawdowns.

[00:46:49] So they flag that as a little bit unusual given the rate volatility. And on the point of correlation, everything is very highly correlated. We've had rolling correlation spasms, I guess I'd call it. That was the name of one of our presentations from last, what was it, July, June in that time frame. And what you see here is that we have small caps, tech, Dow, Bitcoin, TLT, Tesla. Everything is very correlated right now. It's like everything is basically just a rate trade at the moment.

[00:47:18] And so the macro is really at center stage is the point here. There's nothing that's threatening to break out or break down. There's no kind of like vector of attack that the options market, you know, is looking at quantum computing right now or something else. It's just everything right now is kind of just watching this rate trade, I feel like. And then we're going to go from this macro regime shift, which is, you know, rates which are in focus now over the next two weeks, right into earnings, which is really going to clear

[00:47:43] up, I think a lot of what, you know, MagSemons could do with tech and that I think will really dictate, you know, the next two weeks could dictate, you know, a lot for the equity space. And so on this next one, we have seen a decline in call volumes on the top NASDAQ names. Yeah. What's so interesting to me about this, this is call volume for the top 25 NASDAQ names. Why is put volumes? And so you can see here that we built on a relative basis up in the end of the year.

[00:48:09] And then last week we had this really bizarre breakout in the NASDAQ, right? Where the NASDAQ was up 10% over the first week and semis are up over 10% over the first week. There was this giant surge in call volumes, which is this blip right here. And then Justin Hohan goes on his CES analyst day on Tuesday and it all fell apart instantaneously. NASDAQ puked it all back 10% in a day. Now we're down at 130 again.

[00:48:35] And all the SMH, all those call volumes, it all just went absolutely out of the way. And so there was this really bizarre, you know, surge in call volumes that completely evaporated lightning quick. And that was really strange. And you could see that right here is this blip, right? So here's, you know, the start the month, NVIDIA specifically just ripped up 10%. And then right here, we saw tons of call selling. And then all of a sudden, you know, that entire rally just evaporated, right?

[00:49:03] So it was just so fleeting and so bizarre. And I think just such a way of exemplifying how these options volumes can exacerbate volatility really very quickly, really elevates the vol of vol. Do you know what he said? Because I didn't really watch it, but I know the stock went down. Like, I mean, did he warn on something? Yeah. You know, wasn't as positive as people hoped? My take was that the products that they put out were cool, but they weren't necessarily enough to justify the, you know, the higher valuations.

[00:49:31] There's also some reports out that some people were starting to pull back or reduce orders from NVIDIA. And then he also said that quantum computing is 20 years away. And so that took the last kind of call chase that absolutely kneecapped that. Here's quantum computing, which you can see the call volumes here quadrupled. From end of November into end of this year, that is in yellow.

[00:49:57] And then when Jensen Huang said that, all of a sudden call volumes died immediately, put volumes came in, and these names dropped. I don't have the chart handy on here, but like a lot of these names are up 2, 3, 400% over the course of, you know, the last month of the year. They were all down like 50, 60, 70, 80% over the course of one or two days. And so this was really the last kind of bastion of chasing going on. And that chase right now is absolutely dead.

[00:50:24] And a lot of these quantum stocks are going back to the depths at which they came. Did you come up with this quantum computing? Because that's actually really, really good. I did. Good work there. Thank you, Jack. That's very impressive. Yeah. A lot of people- Hopefully you get that thing on Twitter. That's a good, or maybe you have already. That should get some retweets. This is going to be the clip, I guess, that we pull from this. Maybe the rest of the presentation is garbage, but I was pretty proud of computing. At least you got your own new term though now. Great.

[00:50:53] So as we get to the last section here, we're looking forward to the January OPEX and some of the things you're seeing here. Yes. So rates are very elevated. We have a lot coming on here in the next couple of days. We have CPI. We had PPI this morning, CPI tomorrow. We have OPEX on Friday, MLK inauguration on Monday, then FOMCs, and then earnings. Right? So you can see here, this is S&P term structure. It's elevated for these events. And this is, you know, the statistical cone here shows us that short-dated implied vols

[00:51:21] are elevated, but the longer-dated vols are not, again, they're not all that high relative to the last 90 days, right? So any one of these data points I think comes in hot or inflationary or suggests that rates can rise. Then I think we see this term structure lift to highs, which means that, or is the signal that vol overall is finally responding in a major way. And this next one, you're getting to this idea of a coiled spring you talked about before in terms of volatility. Yeah. This just came out from Nomura, so more confirmation bias for me.

[00:51:49] But the interesting stat here was that typically S&P realized vol contracts into earnings season because, you know, people start to focus on single stock stores as opposed to indexes. And so here this chart shows that an earnings season starts, realized vol tends to contract. But what they find is that is true except for January earnings season where, for whatever reason, they don't give a reason, they just say that earnings, realized vol, excuse me, in the S&P expands into January earnings season.

[00:52:16] So I don't know that this is actually due to earnings themselves or if it's more due to just, we tend to, recently have just a lot of volatility in the January timeframe. So the point is, is that the banks start to report, I believe this week actually, to add on to the volatility. And so, you know, there is a suggestion here that rather than seeing realized vol contract right now from its 16%, that we could actually see it sustained really based on this data from Nomura. So this next one plays in this idea that you really are the chart king because we've got

[00:52:46] some sort of heat map here you've developed. Yeah, this is part of our trace application. So you can watch this at spotgabba.com. Thanks for the opportunity to plug Jack. I don't think you intended for that, but I take it anyway. And what this shows you is we talked about positive and negative gamma before. And so what we do here is we look at dealer positioning in the S&P 500 and we say, okay, where's the positive and negative gamma? And in this case, what you see is that below 5,800 and above 5,850, we have a negative gamma regime. What does that mean? That means if the market starts to rally, then dealers and market makers likely have to

[00:53:16] chase. A lot of people right now, they're pricing in less than 1% moves for the S&P 500. If CPI is quiet, I would suggest that we could have more than a 1% rally up into that 5950 area within a few days, right? We could have a very violent rally. And the same thing to the downside. I think to the downside, if we break 5,800, there are some big put positions, particularly down around 5,700, where we start to see that VIX really jump.

[00:53:46] And so there's a lot of risk if we lose 5,800 in this environment and we could see a lot of downside volatility. And that is what the dealer positioning is telling us. Again, on this chart, red is negative gamma. And so that is informing us that indeed we are enveloped with this negative gamma, which should induce volatility. So this next start, we're back to Tesla at $400. Yeah. We want to give the people what they want here, which is a couple of trade ideas. And what this is showing you is call and put gamma by strike for Tesla.

[00:54:15] And what you note here is that 400 is a massive level. Half of this gamma goes away on Friday. Stock currently at 404. And what I think is interesting about this is that we have a new kind of proprietary beta system we're working on. And this shows you the dealer gamma for Tesla. And the idea here is that when this number goes lower, the more negative gamma they have. And so what this is also telling me, the fact that this black curve is going down into 450, it looks like to me that people are short calls.

[00:54:44] This is a dealer negative gamma situation in Tesla. And so if the market starts to rally writ large, right, then we could really see Tesla rip. And I think this 450 to 500 area quickly becomes the price target in a positive environment here for the markets. Obviously, there's a bunch of macro here, right? If CPI is hot and the market goes down, this is not going to happen. But what you see is that there's a lot of negative gamma for the upside, which infers that dealers should chase.

[00:55:11] Further, if we remove expiration, this Friday's expiration, you can see that that gamma gets quite a bit more negative, right? That's the difference between the black line and the orange line. So what this is telling me is all that 400 gamma expiring on Friday is going to remove the 400 pin for Tesla. That's takeaway number one. And number two is that if the market really starts to rally here, Tesla could respond with a much higher kind of response, right? Much, much bigger relative moves.

[00:55:39] Much bigger moves than probably the market's pricing. Now, if you compare that to NVIDIA, NVIDIA has an equivalently large position around the 140 strike. But if you look at the gamma curves for them, what you see is huge positive gamma around this 135 to 140 area for NVIDIA, which is a kind of short-dated volatility kind of suppressing levels, what this is telling me. So if there is positive news out of the CPI, I think NVIDIA would rally much less relative

[00:56:09] to Tesla given the gamma positioning. Second, you can see there is a big reduction in NVIDIA gamma after this expiration as well so that it shouldn't pin as much as it is arguably now or shouldn't be as supported as it is arguably now. But the upside gamma is not there, which tells me that, again, if we end up in a positive market, positive environment next week, Tesla should significantly outperform NVIDIA is what this data is telling me. So I'd like to put this out there so we could track how this data performs or how this informed

[00:56:38] us over this next month. To the same point, though, NVIDIA seems better supported by this positive gamma to the downside, whereas with Tesla, this negative gamma does really persist down through 350. So if the market is negative, this suggests that Tesla would outperform to the downside, underperform, I guess is what you want to say. It would sell a lot harder than NVIDIA. So the point is, Tesla seems to have a lot more volatility coming up for it right now, which would be sort of a flip to the positions.

[00:57:09] I think NVIDIA has had a lot more volatility into today, whereas Tesla's really pinned 400. So I think that relative performance will start to shift where Tesla really starts to display a lot more volatility relative to Tesla. Sorry, Tesla should have a lot more volatility relative to NVIDIA. So as we wrap up, we're going to definitely have a lot to talk about next month because we have a lot of events here. Hopefully they end up being positive events. Hopefully the world sticks together. Hopefully I don't have to build a bunker in my backyard and put some gold in there or

[00:57:38] anything because I really don't want to do that. I'm not a very good digger. But anyway, we should have a lot to talk about next month. Yeah, absolutely. And I think the big thing here is that this is a market that I think is underpricing volatility. And so does that mean we get the trigger? Not necessarily. But if we do get the trigger, people shouldn't be shocked by the huge volatility response, right? And you can lean on these expirations, I think, as turning points oftentimes in the market.

[00:58:06] And so better to be prepared for the possibility of a big spike than kind of caught off guard. And I think that's what the headline is here. And if you want to start a grassroots effort for the MAVGA hats, contact Brent. He's happy to get that going for you. That's right. And let's hope that compuking goes viral. Exactly. Thank you, everybody, for joining us. We'll see you next time. This is Justin again. Thanks so much for tuning into this episode. If you found this discussion interesting and valuable, please subscribe in either iTunes

[00:58:34] or on YouTube or leave a review or a comment. We appreciate it. The opinions expressed in this podcast do not necessarily reflect the opinions of Alivia Capital. No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of clients of Alivia Capital. Thank you. Thank you.