Full Transcript: Brent Kochuba on the SpaceX IPO and Options Flows

The Gamma Squeeze Setup, the Call Bid, and June’s Quarterly OPEX

Jack: So Brent, it’s June 12th, 2026. We’re just after noon and SpaceX is live and up around 20%.

Brent: That’s right. Uh, my dentist friends are texting me asking me what SpaceX is gonna do, so you know what kind of event this is. It’s a big, you know, worldwide event here. Uh, I’m gonna see my mother later, and if she asks me about SpaceX, I might have to short it. We’ll see.

Jack: Yeah, yeah. My uncle was texting me about it, which he always does about these hot stocks. So yeah, this is definitely going way beyond the world of investing and into, like, everybody’s thinking about this thing.

Brent: Yeah. And to be honest with you, there’s so much stuff going on right now, and then you add SpaceX on it. Normally, I am a guy that has some, what I think are some humorous titles. I didn’t have anything else other than Elon the Trillionaire, because I’m still trying to wrap my mind around that. Uh, it’s just a shocking, you know, series of events that have led him to fairly wealthy individual to, like, God-like money.

Jack: It is crazy. I mean, he’s had so many times in his career where it almost all fell apart on him. And to think, like, where he is now, it’s... I mean, you gotta give the guy credit. It’s an incredible accomplishment, to build the kind of companies that he’s built.

Brent: That’s right. And now we all have to think about Elon here the next couple of days as we try to figure out, I think, not just what SpaceX is going to do, ‘cause if you just ignore the stock, kind of who cares. But it’s going to move, and I think it is moving some of the stocks that we’re all trading every day.

And so we’re all trying to weigh the market impact against a slew of Iran headlines, which is just further complicating things on FOMC day. So this is a little bit of a tough environment to try to navigate, um, versus last month, I thought it felt a little more clear to me. So we’ll have to see. We’ll parse through things in the next few minutes here.

Jack: Yeah. And what was interesting about SpaceX too is guys like me, we love fundamental data. That is literally irrelevant right now. At the beginning of trading on SpaceX, this is a flows game based on who has to do what.

Like, nobody cares what the price to sales. The price to sales, by the way, it will be higher than any other—it’s not in the S&P 500 yet, but it’ll be higher than any company that is in the S&P 500. I think right now Palantir is like 65, I believe, and so this is coming out around 100 times sales.

So this will be the most expensive large company by a wide margin, but nobody is going to care about that at all for a period of time as all these flows have to happen.

Brent: There’s so many flows. There’s 20-something ETFs. There’s delayed lockups. There’s, you know, Russell’s gonna add it in. Nasdaq’s gonna add it in as we’re gonna talk in a minute. So that makes it challenging to navigate there.

Then you have the very rapidly shifting AI dynamics, right? Uh, I think Claude and obviously OpenAI are going through their IPOs, and I just think for the AI systems, that matters in terms of pricing. Obviously, SpaceX is kind of an, and xAI is a big component of that. So there’s so much changing around here not just fundamentally in sort of the valuations, but also just in terms of, like you said, the flows piece. Um, there’s lockups that go out over time with SpaceX so that they can add them to the indices and they’ll have liquidity and stuff.

It’s just like, holy cow, like good luck trying to understand how this whole ecosystem is gonna work. And so we sort of are in wait and see mode here for a little bit. But that comes up again against this Iran situation. And Iran, I think in the short term matters a lot more, even though we’re only talking about SpaceX.

There was a big Iran signal that came yesterday with Trump’s tweet. Vol really dropped because of that. We’re supposed to get a deal signed this weekend, but who knows? And so that’s just another piece of this pie. If the Iran deal isn’t real, that’s gonna hit the market, I think, harder the more we keep going here.

Jack: Well, and obviously you had, um—we love Brent’s Conspiracy Corner, and obviously you’ve had some conspiracies that the idea was Iran had to be settled to get the SpaceX IPO out. So we had to make sure SpaceX didn’t come out into a bad environment, so we found a way to at least a proposed deal to appear.

Brent: I mean, they announced the deal yesterday at 2:00, and the market just went super bid. And then today they got some confirmation headlines coming in, and the market went bid again. And then, you know, and then SpaceX... I don’t know. I don’t know. Brent’s Conspiracy Corner. Maybe we need—

Jack: Jack’s Conspiracy Corner to go with Brent’s now. We need multiple conspiracy corners here in a podcast where we’re supposed to be talking about options flows. We’ll just degenerate into conspiracy corners.

Brent: We’ve strayed way off. Uh, so our chart of the day here is Elon Musk’s net worth over time. I had Grok, which I thought would be the most biased about this, present Elon’s net worth. And Jack, I don’t know how they present your net worth, but his is presented here in billions. So, uh—

Jack: I was thinking, like, in 2002, like if you put my net worth, like, currently against his 2002, like, it wouldn’t even—like, there wouldn’t even be blue there, I don’t think. It’d be like 18 dollars instead of 18—

Brent: billion.

Jack: Yeah. Like, you should have put Jack’s net worth on the chart along with Elon Musk’s, though.

Brent: It is. It’s down here somewhere.

Jack: It would just be like the bottom, like there wouldn’t be anything there.

Brent: It’s right there. It’s right here. Um, so you had Tesla, obviously, is the big driver, PayPal, and some of his earlier ventures in here. After PayPal, I forget which one I’m missing there. But then you had Tesla being the giant one. And then a lot of these other moves, the companies have combined and things like that. But this today with the SpaceX launch, it’s apparently gonna be just under a trillion dollars, depending on where you mark SpaceX here.

Uh, but, you know, just an astonishing number. And so I’ve already had a bunch of people tell me, “These are just the public people you know. You don’t know about the secret families. They already have trillions.” So I don’t know about those people, but the public figures here, he’s definitely the wealthiest.

Jack: Well, they say, Brent, after a certain net worth, it doesn’t affect your spending anymore. I think he’s over it. I think it’s fair to say that whether it’s a trillion or not is probably not affecting Elon’s day-to-day spending at this point.

Brent: I’m guessing not. Yeah, I’m guessing not. He corrected, uh... a funny one. AOC was saying, calling him a billionaire or something, and he put a little asterisk there and said, “Now trillionaire.” It was, like, pretty funny, so.

Jack: I’m sure she loved that, too. That’s exactly what she wanted.

Brent: If I was a trillionaire, I’d just be joking with everybody, too, I guess.

Jack: Yeah, yeah.

Brent: So normally we move into our projections, but SpaceX is such a hot topic. It just started trading, Jack, so we’re doing a little hot take, hot look at the IPO. S&P—this is where the Iran tweet came out, and we rallied pretty sharply, and here’s where—the blue is the SpaceX IPO, obviously.

So a lot of gyrations here to start. This is the interesting part about the liquidity situation, right? Where you see a mild drawdown in S&P, maybe hard to really mark a whole lot of that. But now the stock and the S&P seem to be getting some footings. Again, I think the Iran situation seemed to bid things a little bit bigger.

We’re gonna get into this one in a second, but if you look at the Mag Seven and you’re thinking like, “What is the liquidity for SpaceX?” Like, stuff has to get sold. I think the Mag Sevens have been getting sold for this, and I say this because if you just zoom out, they’ve been beat up pretty well, and they have not rallied with the larger market.

So Tesla, Nvidia, Apple, all those names seem to be getting beat up more than if you look at SMH, for example. Uh, show me where the selling is in the SMH really. It’s not obvious that it’s really there. So a lot of stuff obviously churning here. And so again, some stock had to get sold.

We’re gonna talk about this in a minute, but now the market writ large seems to be finding some footing. A little SpaceX trivia here for you, Jack. Uh, this is the biggest ever raised, so the IPO is gonna raise $75 billion, so it’s 550 million shares at 135. The biggest previous was Saudi Aramco. Uh, that was $30 billion. I don’t know what happens if you adjust that for inflation on a real terms, but, you know, this is huge. Cerebras, CBRS, went out about two months ago. That was 5 billion—sorry, two weeks ago. Uh, about a month ago, I guess, now. Uh, that was 5 billion, and that was the biggest IPO since Snowflake, I believe it was, S-N-O-W, in 2020.

So that gives you a little bit more. That $1.7 trillion valuation is around number eight in the S&P 500, if it was added to the S&P 500, as we know it’s not yet.

Uh, just to put that into perspective, Apple and Nvidia are both over $4 trillion, and they’re the top two. If you put the two Google classes together, GOOG and GOOGL, that’s around the same thing. So it has a gap to these top things. Ninety-four times revenue as of right now. Uh, amazing.

I think the number there for the retail allocation is closer to 20%. I got some texts from some friends that were saying they got one share allocated to them, and they were excited about that. Uh, the other interesting one, if you Google this, Jack, if you’re bored or looking around on Twitter, 4,000 new millionaires is what Grok is saying this is creating, which is an astonishing amount of wealth created.

Uh, and the IPO was fixed at 135 on the open, but obviously it’s trading quite a bit higher there as well. Then you have the fast track to the Nasdaq and Russell, both of them changed their methodologies to allow this asset in. And then the initial public float is quite tight, which is interesting because as they add to the indices, they’re going to start piecing out more shares of stock.

Now, we’re talking about the CBRS IPO mid-May, and it was interesting because in Brent’s Conspiracy Corner, what we noted here was Cerebras ripped on this day. We had just very, very strange zero DTE flows and these flows that really pumped the market up and you’re like, “What’s going on?” Then the IPO comes out and you can see in the short term that really marked a high for the Qs, and the Cerebras IPO is down something like 50%.

Uh, it IPO’d at around $400, as you can see there, and it’s trading for about $200 right now, Jack. So the history of IPOs is pretty ugly, and that’s been passed around a lot on X. So can SpaceX buck that trend? You know, we’ll have to see, but that’s just kind of an interesting thing.

On the topic of freeing up cash, like what had to be sold to free up cash to buy SpaceX, for example, this week we saw really big, what we call negative delta flows in the single stock space specifically. So in here, we’re looking at the basket of the stocks in the S&P 500, and I’m looking, Jack, at this in here, this line. Um, so in Tuesday onto Wednesday, coinciding with a pretty good market sell-off here and some weakness this week around Iran escalations and stuff, we saw about $6 billion worth of delta sold in the S&P equity space, which in and of itself is interesting.

It’s high, but it’s not massive. But what was unusual about it, if I just flip to this next chart here, Jack, is what was unusual is in the S&P 500—so S&P 500, that’s SPDRs, SPX, in the e-mini order flow—over that same period, that flow was positive even though the market was weaker. So I think there was a lot of stock getting sold this week.

We saw in the options flows maybe some attempt to get some liquidity, free up some cash in order to position for this very big IPO. So I think amongst with everything that was happening with the Iran situation, I do think that some stock weakness here could be attributed to the SpaceX IPO launch, and now that that’s out, obviously we’ll have to see what happens here.

Uh, in the compensation, this is interesting, though, because—

Jack: People always say this, the market’s smarter than everybody, and that this is kind of a sign of that. Like, everybody’s expecting like, “Oh, SpaceX will come out and then the Mag Seven will sell off.” Well, the market might’ve been like, “All right, I’m selling them all,” you know, in advance.

Like, I know this is coming. Like, that sell-off people might have expected actually came maybe before the IPO, and maybe there’ll be more to it, who knows? But it’s interesting, like the market always seems to be smart and ahead of these things.

Brent: And I suspect people knew for sure or had a good idea of what size of an allocation they were gonna get for whatever the reasons may be. Uh, liquidity providers as well maybe had to free some space up for this thing. So look, this wasn’t biblical selling in the equity flow. It was large. The largest actually was on the spasm day. Um, Jack, when everyone gets to give us our flowers for the correlation spasm last week.

But that was eight billion, so, you know, six billion in a day or two. Again, it’s not humongous, but it was very unusual relative to the index flow. So I do think, again, you look back at that Mag chart, extra weakness generated by maybe having to free up some of that cash is kind of the way I’m thinking about it.

Now, everyone’s gonna ask, and so I’m gonna put an asterisk on this. I’m shooting in the dark on this one, but everyone just goes, “Brent, what do you think?” So, at a shot-in-the-dark thing—if I’m right on this, wonderful. If I’m wrong on this one, like, don’t—definitely don’t trade based on this idea.

Um, but my sort of best guess here is we actually opened... And this is hyper liquid, which is cool. It showed kind of pre-market over the last few weeks. It was tracking the IPO, which came down some. So we opened and we’re trading right around in this area. My guess is that Friday into Monday, Tuesday we see the stock move up now into the 200 maybe.

I don’t really have a great idea with that. Um, but the options start trading on the 16th, which is I think there’s gonna be a lot of vol that’s gotta get settled in this thing, and I think the options market, it’s gonna be interesting because do people sort of pile in into short-dated calls and try to FOMO this thing and squeeze it right off the bat?

That’s a certain possibility, right? Uh, I wouldn’t, you know... Watching that short-dated flow is gonna be super interesting on the 16th when the options open. Um, and then in here we have the FOMC, and then we have VIX expiration, and then on the 18th we have this massive options expiration, and then you get the Russell adding it in the Nasdaq.

So Russell’s gonna be around the 20th, 21st. They’re quoted as saying they’re gonna wait five days till after IPO, which is today. But we have... And that’s trading days, but we have the Juneteenth holiday on Friday of next week, right? So that’s gonna make it wait another day. And then sometime prospectively around the beginning of July would be the Nasdaq entrance.

Historically, when you watch these names get passed off to the indices, the name gets bid up into the index flow, and then the indexers kind of buy it at a relative high. That sorta seems to be how this goes. Like Marvell’s gonna get added on the 22nd, for example. Um, so we’ll see how that goes.

So my little conspiracy corner here is kind of a bid up into next week, and then I think when we start to feed it into the Russell, some lockups become available and stuff, then I think maybe that’s a time for another maybe a correction here. Um, again, shooting in the dark on this, but that’s kinda the way that I’m thinking about it.

I do think there’s so much excitement that a bid initially here is good, and I’m thinking that the options market opening allows just the degens to kind of like pile in on short-dated options and pump it. So we’ll see here, Jack, and it’s gonna tie into some of the other things we’re looking at.

But that’s again, that’s just a shot in the dark, kinda fun for a guess, whereas I’ll put a little more of my ego into some of our other predictions that we make here in the rest of the presentation.

Jack: When the options start trading, is it like a full package of options? So if you look at like what’s available for like an Nvidia, is like all that gonna be available for SpaceX, or does it like slowly come out over time?

Brent: Nvidia has Monday, Wednesday, Friday expirations, so I... What I guess with SpaceX is they’re gonna have the weekly, so every Friday they have the expiration. Uh, and I’m assuming that it’s gonna be a pretty standard looking instrument when they push it out. I doubt they’d be doing the Monday, Wednesday, Friday expirations to a brand-new instrument.

Uh, I’m sure the liquidity providers and market makers there are probably saying, “Give us some standard stuff, a pretty wide range of strikes.” And I’m imagining that the liquidity is gonna be entering into this name very, very quickly. Uh, and that’s just another thing too. If the float is not all that big and, you know, conspiracy corner again, the float here is not all that big relative to what you would normally expect, and then they do the old squeeze them thing like the short ladder attacks or whatever they used to call them, AMC and GME, right?

‘Cause they know the float’s not that big. Do they try to do some shenanigans? I don’t know. Plus it’s Elon, and Elon always has a way of commenting on things and stirring up the WallStreetBets crowd and whatever, be it Dogecoin or whatever else. So, you know, I think it’s gonna be... I would rather be long the stock than short it over this next week. After that, particularly get some kind of insane pump then I think around that, right after that holiday period next week. Uh, so it’s kind of a time related view there. And this is when the share lockups come.

Uh, it wasn’t specific as to what those share lockups are, but these are the tranches that come out, right? Just to give you an idea how these are staggered kind of over time, which I think is another piece of this puzzle. More shares become available as we go out in time, and they said they did this in a measured process so these index providers can add it, which allegedly we’ll see.

Jack: Is there anything that’s like you mentioned, like people buying call options. Is there anything that’s like necessarily positive or negative about options trading? Like I guess on the other side too, you have—it’s easier to express a negative opinion on this because you’ll have put options available.

Is there anything about options trading that tells you anything one way or the other? Or is it really just a matter of what people are doing once the options are out there?

Brent: I mean, well, the problem is you don’t have a baseline for this, right? So a lot of times we would look at call skews or put skews, for example, the implied vol versus realized vol of this thing.

Obviously, it’s just starting trading, so you don’t have like five, 10, 15 years’ worth of data. And on a sector basis, you can kinda compare it maybe to some of these other semi stocks or memory stocks and things like that, but this kind of is like the space frontier thing. So like what bucket do you put it in specifically?

I mean, you could generalize it as a kind of a high-flying tech stock, I guess, but it doesn’t really have industry peers that are clear for sort of some correlation or some nearest neighbor type analysis, I guess I would say. So I think this thing really has gotta settle in and I think the big thing is the options are probably gonna be very expensive on a relative basis is my guess.

So if I was gonna gun to head start trying to do something, selling some deep out of the money puts ‘cause I’m expecting that vol to be kinda high, I’d wanna try to mine the volatility of this thing. Uh, I definitely would not wanna be short calls on it. Uh, but I think that the markets when they start are gonna be very wide.

The vol’s gonna be very high. The market makers are gonna give themselves a lot of space ‘cause I’m sure there’s just gonna be so much volume and attention. So Ken Griffin’s probably set up pretty good in this situation. I think the average retail trader will see, and I suspect that the volatility surface that we see on the 16th, 17th is gonna look a lot different than a month from now when things kinda settle in, liquidity kinda settles in, and everybody kinda gets their footing on it.

So, um, it’s gonna be the Wild West, I think, to start, which won’t deter, I don’t think, the retail traders. But again, I would be thinking about selling puts because I wanna be trying to... play the volatility of it, which I think is gonna come down over the next couple of weeks, meaning the options volatility is gonna come down over the next couple of weeks.

Jack: I would argue Ken Griffin’s in a good position for almost any situation pretty much. Uh, ‘cause Ken seems to win no matter what.

Brent: All good, yeah. I mean, he’s looking at Elon’s net worth over there and is thinking, “Uh, man, do I suck.”

Jack: That’s true. This is like the one time Ken Griffin can look at something and be like, “I’ve actually failed miserably.”

I was looking at this situation. Just one other quick thing. Do you think when we talk, like a month from now, will we be talking about SpaceX like in the same category as like the Nvidias and the Teslas that are like the king of the options space in terms of all the volume and activity?

I mean, do you think it’ll pretty quickly move into that category?

Brent: Uh, on a sustained basis, I don’t think so. Uh, doing a million contracts a day is a remarkable thing. I mean, I’ll—I could just... We never show my dashboard here, but if you just look at tape here, for example, and we’re only about halfway through the day.

But Nvidia and Tesla will trade one million plus contracts every day. You can basically guarantee it. Uh, and in terms of the single stocks, and then the next closest is generally like in the high hundreds of thousands, so 750 to sometimes a million. And then you’ll have like these rolling hot names that’ll do a million or a million and a half contracts a day, right?

Uh, we’ve seen Micron trade as many as a million. Intel will suddenly pop to a million. MicroStrategy, back when people cared about crypto, will trade to a million. So I would suspect SpaceX could start to see some of that, um, particularly if the vols are rich and you start to settle in and you get this retail FOMO.

So to your question, I think initially you’ll see some spasms of volume, one of my favorite terms obviously, over that million contract level. But Nvidia and Tesla have this ecosystem of options flows that’s super unique. So on a sustained basis, I think SpaceX will be kind of lagging that a little bit.

Jack: So as we move into what we actually talk about here, Brent, um, we’ve done a lot of SpaceX here, but what we usually talk about is the flows behind the scenes driven by options. And as you can show in this slide, um, the options activity has been rising dramatically, and there’s no signs that’s gonna slow down, I don’t think.

Brent: Yeah, and these charts are due for a little bit of an update here, but on the 5th, which was the spasm day, we traded 108 million total contracts. That’s the second highest ever. So the options volume just keeps surging and keeps going. And so the idea with that is that that matters more to the markets.

And why does that matter more to the markets? Well, I should have put SpaceX in here just to be fun, but if we’re all out there buying SpaceX calls, Jack, as an example, um, Elon tweets something, we all go, “Ooh, I need to buy SpaceX.” So we all go buy calls. We buy 10 calls only. It’s a fairly small order.

The market makers are sitting there, and if they sell enough, in this example, they sell 100,000 calls, they go, “Oh, no.” Let’s say those are at-the-money calls. At-the-money calls have what’s called a 50 delta. And for purposes of explanation here, 50 delta means you need 50 shares of stock to—pardon me—to hedge that position.

So in that equation, the market makers would have to buy up to 5 million shares of stock, and they kinda gotta do that on the hop, right? Kinda like right now. Uh, they’re not gonna take their time for two, three days to buy that. So if enough options start to trade and enough time and there’s that liquidity demand, you could gamma squeeze this thing I think pretty easily, which is a very interesting prospect here, I think over the next week really, given the attention this thing is getting and these liquidity dynamics.

So we’ll see if this happens. I have not seen anybody talking about these liquidity dynamics, Jack, so I think this is a unique angle that we’re talking about here today.

Jack: It would be interesting, like, to see a gamma squeeze in something like this. I mean, obviously we’re not gonna see anything like GameStop because if it went up as much as GameStop it would basically be the entire stock market.

So that... I assume that can’t happen at this size. But it would just be interesting to see what it might look like in a company of this size if that type of thing occurred.

Brent: Yeah. And the... You remember Avis, CAR was the ticker, about a month ago, maybe a little bit longer? Time is going so fast. You know, there was one fund that apparently had the lockup on this thing, and then that stock went from $80 a share, $100 a share, somewhere in the neighborhood, up to about $1,000 in about two weeks, right? Because people started to go, “Oh, there’s no liquidity on this thing.” They got it cornered basically, right?

And that situation where there’s not that much stock to hedge with, there’s not that much float, right, is the names that you can jam people. People obviously like to find big short interest. There’s probably not gonna be any short interest, I would imagine, or material short interest on this thing to start either.

Uh, so that part is not really there. But if you start to think about, hey, we start buying enough calls in this thing and the lockup and the float is indeed that small while everyone else is trying to get liquidity on it, the indexers and everybody else, I mean, it’s kind of an interesting setup because it’s about how many shares would have to be bought to hedge this relative to how much stock is trading, right?

Um, in this situation, if you’re a market maker, you’re like, “I can’t hedge SpaceX with like QQQ calls really,” right? ‘Cause the two aren’t gonna be that correlated to each other. Whereas if I own Apple, I could probably hedge it with Qs or hedge it with Google or something, like some sort of tech, you know, some other tech name if I had to.

Uh, but in the SpaceX thing, it has this idiosyncratic risk, which is very difficult to hedge without the SpaceX shares themselves.

Jack: Yeah, this is the interesting part about this is how important flows are with respect to the market, and options flows and all kinds of flows. I mean, nobody was—when Avis was going up however much it went up, nobody was, like, analyzing the present value of the discounted future cash flows of Avis and saying, like, “This company’s worth, like, five times more than it was last week.” Like, nobody cared about that at all, which is kind of a dynamic you’re seeing in SpaceX right now and you see across other things. There’s times where just, like, these flows are all that matter.

Brent: Yeah. I mean, and this is it, right? So this was March 24th. So this was during, you know, I mean, granted, the Iran situation didn’t come in that much. You know, obviously stock didn’t matter. But this is what I—this is, you know, this is obviously an extreme dynamic here. Uh, but look at that move. That’s 750%, Jack, and that’s one month, right? And then that took a month, and then look how long it took to come back down, right? About two, three days, maybe a week, and now it’s almost like nothing ever happened, right?

So these are the type of situations where I’m not trying to say that you’re gonna have this in SpaceX, but on the extreme version, you look at something like this and you go, okay, this is the matter to your point of lack of liquidity.

And people, when people know there’s a lack of liquidity, the retail public has caught on to this. I think there’s some—obviously very smart traders out there, professional traders that catch onto this and it becomes a vector of attack because you wanna use that lack of liquidity against somebody else to push the price up, and that’s kinda what the idea is here.

Jack: These traders like to mess around with these car rental companies. It seems like—didn’t we have Hertz back in the day? It seems like a lot of these are centered in the car rental area.

Brent: Yeah. I mean, they’re garbagey kinda stocks. They’ll have a lot of investors that’ll come in and, um, the name is slipping me, the people who wanna change the dynamics and try to get a board seat. What do you... Activist investors. Um, those types of things. And so I think that’s why people can sort of define the lockup or the lockup is easier to estimate. That’s small on a smaller cap stock like that. Whereas an Apple, how do you corner that thing, right? Like, there’s so much liquidity there, it’s, like, obviously much tougher.

Um, and then this matters because if the stock price changes, the delta changes. So earlier we used a 50 delta example. If the stock goes up, the delta increases, which means that more shares have to get bought. So this was the—as the stock goes up here, you have to buy more shares of stock.

As the stock goes down, you have to buy less shares of stock. So in this example, you go from a 60 delta to 100 delta. So what does that mean, Jack? You’d have to buy 40 shares of stock as the stock goes up, for example. So just ‘cause you’re hedged right now doesn’t mean you’re not hedged. As the stock price moves, same thing.

If the vol of the move names, the implied vol of the options, that changes the shares you have to buy. And then just as time passes, you have to adjust your shares as well. So just because the market makers are hedged right now based on current trading, even if no other options trades take place, they still have to manage the exposure of their book over time.

And so, um, that creates persistent hedging flows, and that’s something we talk about often around here.

Jack: So as we head into the next one, this is why we do these—we’re talking on Friday. Next Thursday will be options expiration because of Juneteenth. Um, and as we head into options expiration, we get some interesting things that happen with flows.

Brent: Yeah, and the thing to note in this case is that the third Friday of the month is usually the bigger options expiration. But the other thing that we wanna make sure we flag here is that this is a quarterly expiration, so that’s a big deal. And then you can tell I got a new pen tool here, Jack. I really like to flex that thing.

Jack: It’s fancy.

Brent: Normally OPEX would be on the 19th, but because we have, um, Juneteenth, it’s on 6/18, right? So that’s a day earlier. That holiday also impacts the dynamics around time decay and things like that, so that matters. And then the other thing to note is that VIX expiration’s on the 17th, that’s the same day as FOMC.

So highlight this area as a possible key moment, right, for big time positions to shift. This is, again, a quarterly expiration, as we’re gonna talk about here in a second, Jack. It may not be the biggest ever, but it’s gonna be sniffing around the biggest ever. And so the idea here is as more positions build up into expiration, those hedges that are associated with that expiration get removed, and that can oftentimes bring a change in flows.

In fact, our stats say that performance tends to flip odds on about 60% of the time, two-thirds of the time at expiration. What does that mean? We rally into OPEX, we tend to sell off after, and vice versa. If we sell off into expiration, we tend to rally after. Uh, and then again, can be a significant turning point, sometimes a smaller expiration or something, or if we’re crashing that can be a bigger more impactful turning point depending on your timeframe.

Jack: And just to—the other thing—just to clarify, would there be SpaceX options like expiring next week? I mean, they’re putting them out, like, in the middle of the week. There would be some that expire right away at the end of the week?

Brent: I’m assuming they will have Thursday expiration options available. So those would be the zero DTE or short-term expirations would be the Thursday option. So they’ll come out on the 16th and then there’ll be 6/18 expiration. The other one here is, um, the change in RV. This is realized vol. So how much does the market move, right? And the key thing here is that look at the change of volatility into and out of the expiration.

So the takeaway here with these charts is that when you have low volatility environment, it tends to contract even further into options expiration. When you have a high volatility environment, the market tends to get even crazier into expiration, so it sort of exacerbates or magnifies the existing volatility.

And then after expiration, the volatility reverses. So quiet periods go to wild periods or, or not necessarily wild, but vol expands and vice versa. Vol is really big into expiration, tends to contract after. So it matters. OPEX has shown to matter both on a price and sort of magnitude or volatility perspective.

Jack: So this next chart is gamma and predicted one-day volatility. And this is surprising to me because I’m just remembering the spasm we just had, and like I would’ve expected this arrow to be a little bit more to the left here than it is, but I guess we really came down hard.

Brent: We came down hard and then we’ve rallied sharply here over the last two days with the Iran news, and so we’re in a mildly positive gamma environment, which says there should be some pretty decent stability in the S&P 500.

We’re gonna talk about the spasm here shortly, but overall, it’s a market that is fairly well supported right now based on S&P gamma. A lot of this gamma should be removed at options expiration as well on next week on the 18th. So putting this into size a little bit here, um, the S&P 500 obviously is the monster here.

If you combine SPDRs and SPX, it’s bigger than all the other expiring positions combined. We measure this by delta, so we measure about $2.5 trillion expiring here. You may see some kind of crazy seven, $8 billion number. Goldman is usually the worst offender here. They consider every contract expiring as equivalent to 100 shares of stock, which is ridiculous because obviously if the contracts are super far out of the money, they’re worth zero.

So delta tells us the share equivalent, so that’s why we like to measure it that way. Uh, and you see here we’re weighted to calls, and it’s not yet, Jack, an extreme. We’ve seen many times together that it’s been 80 to 90% call values that are expiring, and that is when I look for it to be an even more impactful options expiration.

The thing I’m watching for here is we could stretch this number quite a bit over the next couple days. Imagine if that MOU deal is signed, Jack, over the weekend with Iran, then you got the SpaceX thing. Oh, okay, inflation may come down now ‘cause oil’s coming down now. Let’s just—let’s party, and you could see a couple days of some pretty wild market action here.

So this could change but right now it’s certainly leaning to the call side but it’s not like a record, so to speak. In terms of how big this is, here you have S&P 500. Again, not the biggest ever, but, you know, we’re sniffing around one of the biggest expirations ever, certainly on the index size.

So this is Nasdaq and Russell. It’s a monster expiration, as you can see here. Uh, so those indices are having a bigger expiration but this is a fraction, about a 10th of the size of the S&P overall. So yes, huge Nasdaq expiration. Uh, and this is gonna be a theme that you see, and I think is important for longer term investors who probably have thought about this already.

But the performance of the Nasdaq and the way it’s been behaving in the last, call it one to two months versus the S&P is drastically different than any time I’ve seen on a sustained basis, certainly over the many years I’ve been doing this. And so we’re gonna touch on that here in a couple minutes.

But you can see the difference here in size for Nasdaq expiration versus S&P.

Jack: So as we look into the events coming up here, you’ve got the VIX, you’ve got OPEX, but you’ve also got a Fed meeting, um, next week with the first of the new chair.

Brent: Yeah. That’s right. And there’s a BOJ and an ECB, um, amount of other acronyms throughout this thing, Jack, as well mixed in there.

And so the idea here is the S&P, since May OPEX, we’ve gone exactly nowhere, especially if you look at where the S&P is trading right now at around, I believe it’s around 7450. So it’s been a very flat period here. Iran headlines back and forth. But we had an incredible volatility event as you can see, kind of mid to early June, which really mattered in the short term.

These are—this is why we call these things spasms that take place because that’s kind of what they are oftentimes are these short-term spasms where people kind of black out and then they kind of come to and things recover, right? Uh, not necessarily these kind of crashes that you have 20% sustained drawdowns a la 2022, right?

So we just came off of one of these spasms, and into these events, we’re gonna have a lot of positions changing, and there’s gonna be a lot shifting around. And so this creates what I call path dependency, or I will refer to as path dependency as to how I see things playing out here into July options expiration.

On this point too, VIX expiration, which is on Wednesday, same day as FOMC, you can see here we make interesting lows around VIX expirations into OPEX. So that’s why we refer to the VIX expiration to equity expiration as a window. Uh, the VIX expiration, equity options expiration, they can change based on how far out we are to the next equity expiration, so VIX has to be 30 days from that.

So equity OPEX first here, whereas VIX OPEX was first. In this case, VIX expiration’s first. So that starts the window. The window’s only two days long here because obviously the holiday means OPEX is on Thursday. So normally you have VIX expiration on a Wednesday, Thursday, Friday OPEX. Now we have Wednesday VIX ex, Thursday OPEX, which kind of makes these events a little more consolidated.

Jack: As we get into projections from last time, I was just checking SpaceX, it’s still about 20% up. So it is surprising me so far. Like, I would’ve expected some more wildness, um, on day one, and we’ve kind of been—we haven’t moved around that much yet.

Brent: You know, there’s a bunch of interesting stuff around the lockup and can people sell and some things like that. So clearly something’s going on here at 168, as you can see. Uh, so who can sell? Do you wanna... Like you were mentioning before, I do think there’s some provisions in there if you sell, you won’t get another allocation to a future IPO and stuff. So, um, looks like one big seller maybe at 168 for right now, and that seems to be it.

So all is calm so far. We’re not live streaming this, Jack, so no one’s heard our gamma squeeze conspiracy theory yet. Um, so, you know, that’s critical to note. Uh, and the S&P overall here is that blue line now, and that’s holding up decently around 7420 as well. So—

Jack: I wonder if the technical analysts will already start calling that resistance. We’ve had what? Two hours of charting here. I wonder if they’re gonna say, “We’ve got—you can see a nice resistance line there at the top.”

Brent: I mean, somebody’s definitely selling stock right there. I mean, you look at that lid, right? And I don’t... You know, who could that be? There’s a ton of people. Obviously there’s a decent seller sitting there. And you can imagine there’s probably a lot of people who have the ability to sell the stock. They’ve been sitting on the stock for, I don’t know, 20 years or whatever it is, and they’re like, “You know, please let me get some cash.” Funny.

Jack: But we’ll check in one more time before we wrap up. But first let’s look at... We always like to look at what we talked about in the last episode and kind of take a look at what our predictions were and how they played out.

Brent: That’s right. And, um, you know, we get our flowers this week, Jack, because—

Jack: Are you doing this?

Brent: Core1M, this was the bat signal we like to call it. And surefire, we saw it in early June. Core1M went to six, lowest since July of 2024. That set up the big spasm they had on the fifth. Um, and so that was the big thing around looking for the vol expansion right around this kind of timeframe.

Obviously the correlation just got so overbid. We had that big spasm, then we had Trump accelerating, you know, attacks, or however you wanna state that. I don’t even know what you even call this whole situation anymore. So there’s all that going on, which is exacerbating things. Uh, but this whole thing, and I think we anchored a lot on this as being the bad signal for risk-off, you know, proved to be true.

And there was a lot of stabilizing positions to start May OPEX, which is mid-month. Uh, you saw these big call squeezes. We talked about a lot of things were in the short-dated. Um, but, you know, this was the situation, right? People were getting very excited about call options, and we’re on the right side of this map, right?

And I didn’t include a chart of what did happen, but all the call positions into kind of early June, they all moved over here, right? And what was happening was people were just flying into Micron, flying into SanDisk. Micron on a premium basis in the option space started trading more than Spiders and the Qs, right?

So that’s how big it got, like unbelievably big. SanDisk was starting to do some of the same thing. So all of the dispersion across these charts, all of those names went in this box, right? And this box tells you that calls are expensive and everyone is on one side of the boat. And when that happens you’ll note that that Core1M metric that we look at, it will be in its lows.

And so this is what I’m talking about here. Core1M to start June went down here to six, and that is the situation where we go, okay, that’s the bat signal that we’re going to have a problem. We just need a trigger. I think on that morning there was a, um, a little data point that came out, and I think it was a jobs number.

It actually came in good, more jobs than we expected. So people go, “Oh no, that’s a rate problem,” and then all of a sudden everyone freaks out and all of these things spasm, right? Now, a week later, no one talks about that jobs number at all, right? But this is what broke things. The call fever broke things, and we’re gonna talk about how it was call positions unwinding that really played into that market drawdown here in a second.

Jack: So do you treat Core1M as, like, a very, very short-term signal?

Brent: The back test is very strong. It’s not a huge number of samples here. You know, you can go back to 2024 and count maybe 10 times that it’s gone under eight, and eight is just a number that I’ve found to be an extreme reading.

And again, this is an index, so you have to look at the data under the hood. But the back test of it basically shows that within 20 days you’re going to have a volatility event. Now, that could be a two, three percent one-day drawdown, kinda like what we had, or something like we had last October, November, or like in July of 2024 when we had an extreme three reading in Core1M. We had a 10% contraction in the stock market, right?

So but that’s the general idea is 20 days. So I personally say, I’ve trained myself now if it goes under eight, I’m buying one or two-month expiration S&P options, just general S&P puts, um, to give myself some time decay on that, right? In case I’m wrong, in case it doesn’t happen, I know I need to give myself generally a week or two at least for that thesis to play out. The other thing about this, Jack, is when Core1M goes below eight like this, it generally syncs with very, very cheap put options. So you’re buying puts at very low levels.

We talked about this a lot I think in our last May episode if you wanna dig more into this idea.

Jack: So as we move forward here, we’re looking at—you’ve got these guardrails here as we look towards the June expiration here next week.

Brent: Yeah. So in the short term, this is what we call our trace map, and this shows dealer positioning. So purple on this map means that dealers or market makers in this case, they are owning or positive gamma positions. They’re long calls in this case. Why are they long calls? Because this is where the funds are selling them, and that seems to be pretty thick in this area. So my kinda best-case look into next week is a 7,525 to 7,575—seventy-five seventy-five seventy-five, that’s a tongue twister—level.

You know, if we get the Iran deal then we pump a little more SpaceX, blah, blah, blah, okay, that just under 7,600 area is where I’m watching for a potential top into this kind of big expiration situation. To the downside, where you really wanna start watching out is if we lose 7,400 now, we move into this, what I call a flat to negative gamma regime, which would be red on this map.

That’s where the dealer flows start to sell into market weakness, and that’s where things can get kind of ugly. And so keep an eye on that 7,400 level into next week as well because that’s kind of our risk off level, and if we’re gonna say, “Hey, this market has a problem,” it’s gonna be exemplified by a break under 7,400.

And so, um, I think stops should be set there or you wanna add hedges at that level. But that is certainly the band to watch, that 7,300—excuse me, 7,400—price.

Jack: First of all, I have to compliment you because you’re like the king of heat map charts. Uh, but second of all, like, do you... So that dark purple, is that sort of an indication that as we head into expiration, we’d expect the market to be pulled, like, into that range? Is that the idea?

Brent: It works by pulling up and then as we get closer to expiration, gamma is highest for at the money options and gamma also increases as we get closer to expiration. So more magnet power into expiration is the way to state that. Gamma is simply hedging flows, right? So more hedging flows tied to that area as we get closer to expiration. Those hedging flows are also there to sort of pin the market down. So to use the finger trap analogy, you start pulling on that finger trap harder and harder, you can’t get out. That finger trap gets max pulled, right? If we’re in that area at expiration, right? If we’re lower, then these options obviously decay quite a bit, right? So if we’re down around 7,300, 7,400, those options are decaying and they don’t matter as much, right? So that’s why you have to be near those prices for it to really matter as a magnet.

So what does that mean, Jack? We have to start rallying kind of into Monday, getting that 7,500 area for these positions to matter. Otherwise, they’re gonna kinda decay and not matter too much, right? So there’s some, again, to the path dependency point, we have to start drifting into that area so those things can start to get some traction and have some magnetism to them.

Jack: And then as we clear expiration, that dark purple turns back into light purple.

Brent: That’s right. So you see it go, like here you can see the color change quite a bit. That’s what this is. This is today’s expiration, but these positions are large out into next week as well.

Jack: So as we get into our next chart, we’re back to the four quadrant chart and we’re looking at this idea that calls are bid.

Brent: So we had the vol spasm last week, last Friday, right Jack? And what happened with that is, and that’s why I included the history here. All of the options that were over here, you can see a lot of them, right? They all have lines that go sharply down.

I included this history, and the line is simply the history. So here’s today for the Qs or last night, and then one, two, three days of history, right?

And the reason I include it is because all of these names started off last week down here, and then with the Iran situation and some selling we saw this week. Remember earlier, Jack, I showed you the option selling flows that came in around SpaceX? All of these names dropped down here, and then yesterday at 2:00 in the afternoon when Trump goes, “We have a deal, and we’re gonna sign it this weekend,” apparently, then everything just ripped right back up.

So if you look at AMD here, it’s cut off, but you can see AMD, for example, went down and then bounced, right? And now I suspect we’re seeing some more bounce today. So everyone very quickly went from max bulled up last week, correlation spasm knocks everybody back down, selling on SpaceX Monday, Tuesday, Wednesday, and then Thursday we get the announcement of the deal, and all of a sudden they’re coming back to life.

You know that meme of, like, the Undertaker sort of sits up in his casket? Have you ever seen that GIF before wherever? It’s like, you’re like, “Okay, the calls are back in action.” This market is just so much talking or trading, like, people just wanna start to re-engage it like they were into the craziness of May, right?

I can’t help but see that in all the charts that I read, and this is kind of one of those where we’ve just gone full bull again. Where you start to get the correlation spasm situation, the Core1M sub-eight thing, is when we kinda get a little more extreme, so higher implied vols, people are paying up for calls a little bit more.

You know, we wanna see this area move up a little bit more, and then we’ll have that extreme risk reading again. I think that could happen into OPEX, um, and so I’m watching that really rather closely. Do we suddenly get this voracious call bid that puts us back into this spasm risk situation right into options expiration?

Jack: And what are we seeing in this next chart with IV and skew?

Brent: Yeah, this is another way of looking at this, and this shows you just over the top 28 stocks in the S&P 500. IV rank tells you how expensive options are, in other words, how much volatility do traders expect. What was interesting in this environment, Jack, is that the IV has been just going persistently up over time, right?

And what a lot of this is, is being driven by people buying calls and playing this incredible upside in Micron and AMD and Intel and IBM and all these names, right? It’s been stock up, vol up in a major way, and that is what has been driving the IV rank higher. IV rank is simply saying, “Look at the top 28 names. How is their IV today versus the last year?” And we rank them. Skew rank is interesting because skew rank is saying you take the call IV, and you minus the put IV. So the higher that this reading is, the higher the rank is. Does that make sense?

Jack: Yes.

Brent: So the more expensive calls are relative to puts is what drives that skew rank higher. So you can see here to start June, right, the skew rank was the highest it’s been, at least this year, you could find it until July 2024, this was the highest reading. Then look what happens, Jack. All of a sudden it is obliterated. Why does that get obliterated? Because everybody sold their calls as hard as they could on particularly last Friday.

They continued to sell their calls Thursday, uh, or excuse me, Monday, Tuesday, and Wednesday of this week, and that has in a large way kind of normalized things a bit here. Uh, of course, now with the Trump tweet, they’re rebidding them again, but that kinda gave the market this sigh of relief. It reduced those spasm conditions we’ve been talking about, and now my fear is, or my—I shouldn’t say I’m scared of this, I’m actually excited if it happens again—they’re bidding them back up, right?

And they’re ending in this, we’re going this way again as with SpaceX and Iran situation being cleared. And so that, I wanna make sure it’s clear here that what I’m trying to say is what caused the spasm last week was the evisceration of super expensive calls. It wasn’t that people were like, “I want puts.” It was like, “I gotta puke out of these calls,” and that was what drove the craziness of really the last week.

Jack: And as we head to the next slide, you’re looking at the spasm in more detail.

Brent: Yes, and so Core1M, as we mentioned, went sub-eight. In fact, Jack, I think this is what you entitled your video on our thumbnail, right? Core1M goes, like, fire, um—

Jack: Yeah, I think I did do something about an indicator or something like that. That works very well, by the way. We’ve used that twice.

Brent: And this is the VIX index, and so these two things are very correlated. Uh, you see all of a sudden we’re super calm, everything is great, the VIX is low, and then this is Friday, right? We have correlation, Core1M is the signal. It spikes. The VIX goes from 17-ish all the way up into 21, 22. VXN, the Nasdaq VIX, went even higher than that, and people are talking about this being one of the most violent one-day moves in history. History has an asterisk to it because it depends on your timeframe.

But this was that kind of a move where people were second-guessing their reason to exist, right? It was such a violent activity. But then look, it was a spasm and it was done, right? It’s like if you ever had seen someone go into shock, it’s like they’re going crazy, and all of a sudden they’re like, “Oh, what happened?” You know? Like that’s what it was. It wasn’t this rolling bear market, at least not yet. And now things are starting to immediately trend back down, particularly with that Iran situation going. So it’s a very short window over the next week. We’re already back down to this area in Core1M. I don’t think it would take much for us to immediately get back into this area. And if this coincides with OPEX, then it’s gonna be, I think, a great opportunity to put some shorts on and play a short-term market correction again.

Jack: So as we head into this next slide, we’re looking at oil, and we’ve been, you know, I think for, like, the beginning of our podcast for the first couple years we didn’t talk about oil at all, and now, like, we talk about oil in every episode.

Brent: Uh, it’s made me and a lot of other people look kind of dumb, um, thinking that oil 115, 120 would move markets. Uh, it hasn’t. But what is true is this correlation between oil and rates still seems to hold up a little bit. And I include this because oil’s made its lows now since mid-April. As you can see here, this is the CL, the future. Um, and this is the 10-year. The 10-year kind of came down with it over the last couple of days.

So this matters because I’m not gonna give you Brent’s macro corner here today, but with Warsh speaking on Wednesday, the CPI was a four handle that just came out this week. If oil’s at like 80 and trending lower and there’s a deal signed, can you just wave off a lot of the inflation, Jack? Because now oil’s back down and people are like, “Well, you take oil and energy out of the equation and I don’t know, like whatever.” And then maybe Warsh’s job is a little bit easier in terms of not hiking. I mean, we did price in a hike all of a sudden, right? So in December at least last I checked. That may have changed over the last day or two. So if the deal is not on and oil goes back up to 100 and the rates kind of shift back up, then I think what Warsh says on Wednesday could be potentially much more impactful.

Uh, but again, I’m straying away from my options field. To me, it just matters like where is oil into FOMC, and then I would expect more or less impact with FOMC accordingly.

Jack: By the way, this oil has confounded a lot of macro experts as well we’ve had on the podcast because—

Brent: It’s confounded energy experts also.

Jack: Everybody. I think it’s confounded almost everybody. Um, and that’s the question is like what you just said, is if this comes back down, how much is the lasting damage? You know, we’ve definitely had some people on the podcast who think inflation’s gonna be with us whether this comes down or not.

Um, and also like oil is not just oil. Like this is—it’s an input into a lot of different things in the economy. And so in terms of like second order effects and stuff, it’s just hard to figure out like this period that it stayed high, even if it comes down tomorrow, like how much would that impact be?

Brent: Yeah. That’s exactly right. And then how temporary is this and how much can the US supply? I don’t... You know, I’m not gonna pretend to know all this. But it seems like there is... I’ve not read an energy person out there who has said that this just doesn’t matter at all. Uh, some hindsight and some analysis saying this is why it hasn’t mattered.

So look, I don’t know, ‘cause I feel like every month they tell us that we have one month left until it’s Armageddon in terms of the oil reserves. And the reserves are going down but price is not reacting, right? And price is king. So if the reserves are at zero but price doesn’t care, I don’t know how much I should care ‘cause quite frankly, I don’t really understand.

So the rub here is if oil’s still low into FOMC, then I think Warsh is probably a lot less dangerous. Whereas if you start to see oil ripping and then rates are kind of high and then maybe then that makes the prospect of a hike a little bit stronger and then suddenly a lot of these rich tech stocks that are... You know, there’s been a lot of share issuance and stuff like that lately as well with these Mag Seven companies. And so a lot of dynamics are gonna get shifted here if that rate picture changes. So we’ll see. That’s it for Brent’s Macro Corner.

Jack: Well, we’ll do Jack’s now because I was just thinking, like, at the Fed meeting here, I mean, obviously I don’t think people expect them to do anything this meeting. Um, but I think the commentary will probably be important. Um, first of all, ‘cause it’s the new Fed chair doing his first commentary. But also, like, in terms of what they’re indicating in terms of different directions they’re leaning or how concerned they are about inflation. Like, I think all of that commentary will be interesting.

And then you’ve got in the backdrop the idea that Trump, although he said something about he doesn’t care about inflation or something recently, like, he sort of put these people in with the idea that, like, “I want rates lower.” So it’s a whole interesting dynamic. I mean, neither you nor I or the macro experts have any idea what’s gonna happen. But it’s just interesting to watch it.

Brent: Yeah. Um, and these probabilities have dropped. I’m just looking at FedWatch here at the CME. Uh, 56% chance of a hike in December as of right now, and that number was, I think over 60 a couple days ago. So if I have that right. I’m looking at it kind of quickly here, so apologies if that’s wrong.

But point is, is that this is a rapidly changing situation. A lot of that is tied to obviously the oil situation, I think, as well. So we will see what happens there. Uh, and then everyone wants to say the midterm Trump bid, so we’ll see. Um, on this point, one of the interesting things that you can use to see how much the market believes the Iran situation or not is vol.

And yesterday when Trump tweeted, we saw what’s called fixed strike vol just absolutely tank. Uh, we lost one or two vol points like that, which is a lot. So the market really seems to believe that this tweet is a real one, and that indeed there is some kind of a deal. And the equity market, obviously, as we talked about before, shot up.

People went back into long dated calls. So that clearly, even though the market wasn’t tanking on the Iran flare up again, it definitely breathed a sigh of relief, at least a strong partial sigh of relief with everything that happened or with that tweet. This weekend if we get that deal signed, then suddenly you’re gonna see the VIX collapse, I think, and vol’s gonna collapse and that will be a bid that’s gonna put a bid into stocks. So why does that matter? Because the VIX right now it’s around 20-ish roughly last time we looked, Jack, and one-month realized vol is 15. And so one-month realized vol, normally if you add three to four points, you get the VIX number.

That’s the average spread between SPX one-month realized vol and the VIX. So that would make fair value for the VIX around 19. Now, last week before the spasms, one-month realized vol was like a 12. So what does that mean? There was a big gap between where the VIX was and where the S&P realized vol was. And then look at five-day realized vol, Jack, it’s at 27 because of all the spasm, that big spasm, and then we’ve had some pretty violent swings over these last few days.

So vol has jumped a lot. Now that we have this Iran deal, the vol has come in quite a bit, and if you look at the spread right now, it’s a four between the VIX and one-month realized vol. So it’s back to the average as of now. But if the deal is real, right, then you would expect that vol to contract quite a bit, and so the VIX could come shooting back down.

This is what we call a Vanna rally, right? Where that index vol comes down and that allows the market to keep rallying. Index vol coming down is also a Core1M input, right? Because the lower the index vol goes and people start bidding up single stocks, that’s what creates that spread that starts to break things.

So this is the setup forced to get into that situation that the call options can break things. We have all the ingredients, then we have the big holiday coming up. That’s why kinda like the week after OPEX is one that I’m watching for potential correction if we get that strong rally here over the next couple of days.

Jack: So on this next chart, we’re looking again at the events, and we’ve got a lot of different events and a lot of different directions we could go here probably, depending on what happens with them.

Brent: Yeah, and, you know, we talked about these events here and the challenging spot is do we get the deal or not? If there’s no Iran deal and it turns out to be some nonsense, I don’t know how the market reacts, but do we spasm into the end of July and stuff? I’m not sure. But what is interesting about this, we always mention the JPMorgan collar position, and so Jack, here we are having to mention it again.

I’ll tell you this, on Tuesday, Wednesday, this strike really seemed in play. Seems a little less in play now because the market’s rallying. But the reason I’m bringing this in is because at the end of the quarter, so 6/30, the JPMorgan strike is right around 6,900 in the SPX. Uh, obviously that coincides with the giant 7,000 strike and people love large numbers of support.

So if we have some type of a spasm or the Iran deal isn’t real or maybe we get an FOMC says, “Look, look, inflation is ridiculous, I gotta hike,” or he indicates that and we have some type of event, you really gotta watch that 6,900 to 7,000 level into June as like a big risk-off kinda support zone.

And so pay attention to that. Use that as a, I think a potential bottom in the event of a violent risk-off. Now, things are not really necessarily going that way so, you know, I’m not loving this idea, but if we do start to slip, if we lose that 7400 level, then really pay attention to that area into the end of the month.

Jack: So in the next slide, we’re back into SpaceX, and I just checked and it’s up 30% now. So we are, as I continue to live stream it, we are up a little bit more.

Brent: Yeah. And this is something that, um, it’s super interesting to me because there are times where tech outperforms the other sectors obviously, and that’s been a function of, look, the top 10 names in the S&P 500 are kind of the same in the top 10 of the Nasdaq, right?

And they’re mostly tech stocks. Okay, yes, some are technically communication services, but Google, Amazon, Tesla, they’re all tech stocks, right? Um, the outperformance, sustained outperformance here of the Qs versus the S&P is what we’re showing here. And you can see, granted, this is only about a one-year chart, they’ve really tracked each other.

Okay, Nasdaq starts to outperform a few percent here or there. But look at the separation here now, Jack. You’re talking 12% over the last two months. And what I think is interesting about this is obviously SpaceX going into the Nasdaq in about two weeks, not the S&P. So if the SpaceX IPO just continues to get bid up for some reason, and maybe xAI gets revalued in some incredible way, or who knows, right?

Um, if the Nasdaq is incorporating that, right, does that just start to leave the S&P in the dust? It’s such an interesting idea. At the same time you wanna give a nod to the S&P for not changing their methodology to just sort of get some sort of, I don’t wanna say overvalued because I really don’t know, but on paper it looks a little bit overvalued here at 94 times.

So you hat tip them for that. But at the same time, the performance dispersion here is really incredible. The reason I bring this up from an options perspective is the difference in volatility, implied vols that I’m seeing, the difference in options prices is somewhat staggering.

You’re starting to see that the two used to basically track each other more or less. Um, Nasdaq was always a little bit higher in terms of volatility or options prices, but now that spread is really widening quite a bit. So what’s happening is people are bidding up these big AI names, right?

Uh, Micron, AMD, we all know those names. That is totally jacking up the prices of like SMH, for example, those ETFs, and you’re seeing it just really infect the vol of the Qs as well. Those options prices are surging. And so the Qs are now starting to trade much more differently than like the Nasdaq and the S&P and the Russell, right?

They’re just changing their tone, I guess, is the way that I would put it, or their complexion, or I’m not exactly sure how you would state that, but they’re trading in a much different way. And so there’s a divergence here between the two, between the SpaceX obviously being added and maybe it could be this incredible thing where maybe the Nasdaq starts to eat more of the SPDR’s lunch.

If you go back to the opening chart of the difference in size between the S&P and the Nasdaq in terms of notional value trading, S&P is bigger than all the other options complexes combined, right? And so is this kind of like one of these moments where you start to see on a relative value basis or relative volume basis or positioning basis that that Nasdaq positioning really starts to pick up?

Um, I think it’s a super interesting idea. We’re not gonna be able to answer this question, I don’t think, anytime in the near term. Um, but with SpaceX being added, I suspect it could become a dynamic that strengthens over time as opposed to weakens.

Jack: And the thing with adding it to the S&P or any index, it’s such an interesting debate. Um, like, I mean, most of the people we follow, we’ve had on the podcast are thinking S&P made the right decision by not adding it, and I can totally understand that. I mean, typically when these indexes are adding these companies, it’s the wrong time and it’s bad for the investors in the index.

But you do have the other side of it is like over time, and the S&P is not geared to do this technically, but people do use the S&P as like a tracker for the overall US stock market.

Brent: Right.

Jack: And if you’re using it as a tracker for the overall US stock market, at some point here, SpaceX is gonna be a pretty reasonable percentage of that and you’re not gonna have it.

So it’s just interesting to think about the... And I’m happy I don’t have to make that decision, but it’s interesting to think about the thought process. And to your point, like the Nasdaq, the difference between the Nasdaq and the S&P becomes greater now, right? Because SpaceX goes in the Nasdaq, but it doesn’t go in the S&P.

Brent: Yes. And I’m not old enough to remember this, shockingly, and Jack, I don’t think you are too, but, you know, our parents you quote the Dow, right? That’s what you quote. And no one really mentions the Dow outside of maybe like Jim Cramer, right? Like, it doesn’t get mentioned. It’s S&P is the benchmark.

And so these transitions do happen every once in a while, and I think it’s a super interesting, again, thing to watch here as things develop here over the next weeks and months.

Jack: So as we wrap up here, you got a summary of the key points.

Brent: Yeah, the summary is I think valuable so that when we do our little look back, it matters. But there’s the index thing and this is the distinction. If the deal is actually signed, and then particularly if we see that Core1M below eight, I think that’s a possibility here, a strong one, that we get that voracious call bid again.

Then I think the other thing is when you have the three-day holiday, vol tends to get sold anyways, so you could just see, you know, VIX just get absolutely just crushed, S&P implied vol just get crushed, and people just sort of go great, and they pile in onto this kind of start of summer week is in a way what this is, right?

In a lot of ways. Um, and so we could have a massive volatility crush, and that Core1M could dive. And I think if that dives into that holiday weekend, that could be the time to say, “I need to add some protection,” right? The opposite is there’s so many headlines around this Iran stuff.

Iran says, “No, there’s nothing.” I mean, who the heck knows, right? If there’s for some reason no deal next week, I think that things start to get very confusing very quickly into FOMC. We’re gonna lose all this options positioning as well. Uh, international markets could get rate hikes, Bank of Japan and ECB, I believe as well.

So who knows what cross currents are coming from that. So that’s a tricky dynamic. And so I have a hard time reading exactly what could happen in this situation ‘cause of these exogenous events. So that’s kinda what I’m thinking about. Ultimately, what I... If I had to give odds of something, the way it looks right now is keep rallying here and people go a little FOMO into OPEX on Thursday, particularly again, if Warsh is kinda, like, rather dovish or flat or neutral or whatever, then okay, great, we can keep rallying on Thursday.

And that I think could be a short-term market high particularly if that Core1M is below eight. If Core1M isn’t below eight, we just trend, I really feel at some point between when you and I talk that Core1M is going to go below eight here, assuming again there’s an Iran deal, and then that will be the short signal.

So maybe that comes a little bit later in the month, but I’m really watching that because I just think the calls are just gonna get super bid again, and that’s gonna be the sign that we’re gonna have something kinda snap, right? So that’s what I’m watching there. In a bad deal, you wanna watch that 7,000 JPMorgan area.

And then lastly, just my shot in the dark on SpaceX, the gamma squeeze, chasey FOMO behavior into kind of like next Thursday, I think that could be an interesting one. Um, it’s a good setup. It seems like low liquidity, a lot of people can’t sell, lock up, blah, blah, blah. Great, let’s buy all these short-dated options and squeeze these people to see what happens.

So we’ll see what happens. Um, you and I, I don’t think are enough of influencers to move any markets here, Jack, so we’ll see if our—

Jack: No, I think we’re moving absolutely nothing.

Brent: We’re the tree that fell in the woods on this idea. Um—

Jack: Yeah, that is very true, but it’s still, we give it our best shot. So as we wrap up here too, you’ve got a little deal on SpotGamma, too, you wanted to let our viewers know about.

Brent: Uh, yeah, so if you go to spotgamma.com/relo-hub, we’re offering 50% off your first month. Just use code Heatmap50 and you can get that deal. Thanks for that opportunity, Jack. Uh, and that’ll be it. So I don’t know about you, but I got my one or two lot of SpaceX, and if we do rally into the 18th and gamma squeeze this thing—

Jack: Did you get some?

Brent: I bought some just after the open here. I gotta play with everybody else. Why not? Let’s see what happens.

Jack: Oh, okay, yeah, nice. You wanna say you were part of it, right? It’s much better to say you were part of it and you experienced the whole thing.

Brent: Yeah, it’s a good time. And, you know, I think the gamma squeeze thing has some merit to it, so we’ll see what happens. Uh, I could be in and out of this thing 20 times by then. Sometimes I just get bored, and maybe it’s the name that’s moving the most. But please don’t take anything we said here as investment advice. It’s just fun.

Jack: No, definitely never, under any circumstances.

Brent: I know I haven’t traded since 1990, but I could be in and out of stuff. So, you know, there’s our disclaimer.

Jack: I’m sure you’re more excited to play with the options anyway when they finally come out.

Brent: Oh, yeah. How do you not trade those options if you’re in my seat? I’m sure people are gonna be going crazy. Yeah, I’m sure you’ll be one of the first.

Jack: So great for the options business.

Brent: You know? Great for the options business. So anyways, thanks very much, Jack. I appreciate it. Uh, and I guess we’ll be seeing you in a month. It’s gonna be a very interesting setup here in a month.

Jack: Yeah, we’ll be able to talk about what happened with SpaceX and what happened with everything else. So thank you, everybody, for joining us, and we’ll see you next time.