Transcript
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The speaker introduces the Q&A and frames the day around weakness in AI stocks and crypto. He then walks through S&P 500 positioning, zero-DTE effects, and the early volatility response.
Speaker A
All right, what's up Everybody?Today is October 30th.It's 9:45 spot game members asked for a Q A session today.So we're gonna do this one live.Let's get this all queued up.
Today we're talking about token trouble because of the obvious drop in not only the AI names and AI related stocks, but also because of what we're seeing here in crypto.Crypto's ugly.Maybe one of the worst situations you will ever see in the crypto space.
So let's start, let's start off with the S P500.What you're looking at here is our trace map.And what trace map is showing you is there's actually positive gamma across the board here in the S P500.And that is driven by zero DTE.So you can see zero DT has positive gamma strikes layered all the way down.
And so what you're getting on the S P500 is actually a pretty muted reaction.And in our founders notes, this was one of the dynamics we were talking about was that the S P is pretty muted.In fact, the zero DT straddle, if we look at the founders note, we made a mention of this.The Zero DT straddle was just $40.That's pricing in 52 basis points of movement, despite the fact that the futures had dropped 80 handles overnight.And that's just kind of a shocking thought or idea that the straddle could be so cheap.I mean, crazy right?Now the one thing that we did note on this is that if you looked at where the big zero DTE levels are, it lined out to be about 40 handles up or down from where futures were at that time.So 76.35 is roughly where we snap that 40 basis point or excuse me, $40 or 40 handle straddle down 40 handles get you to 7600 where you can see this is where the biggest zero DTE options are.
And then up put us into up 40 handles from that mark put us roughly into where the biggest upside level of positive gamma strikes were.
And so that seems to be what's going on with the straddle.In fact, there's evidence that we found we have a new algo coming out about this.And also UBS just put out a paper about zero dt suppressing volatility.And so I wonder, and there's some links to this where that zero DT positioning does in fact impact that straddle because for it to be so cheap, you know, despite that big overnight move, is.Is fairly shocking.Now meanwhile, the NASDAQ has dropped over two and a half percent.So it's moving about two and a half times as fast.Now the problem is for the equity complex here is that and what we talked about in the morning note is that the Vols in the S P, they really didn't move at all.So that's not only zero dte, but if you look at this is one month SKU on your screen here, that was up maybe half a ball point across the board.
If you look at the fixed strike matrix.So we can look at this live and what we're doing here is we're going to compare SPX volume, fixed strike volume.So strikes on the X axis, expirations on the Y.And what you see compared to yesterday is that the Vols now are up a little bit more.So things have gotten a little spicier after the open.Talking about now, you're getting a full ball point of shift across the board.And if we scroll down here, you could see that put wing is lifting arguably a little bit more.You're kind of getting one ball point out in time here.If you go out into December, you can see it's only about a third of the ball point.So things are starting to move a little bit more.That ball surface definitely seemed to wake up a little bit now that the cash market has opened.
Given that the S and p is down 1.2%, I wouldn't say that this is a particularly notable volatility shift or volatility move.And if we look at this statistically, we are now seeing the cone is now the 90 day range for one month skew, which is what's loaded up here.So you're starting to see that put wink lift more now than it has in the past 90 days.
This section focuses on why volatility remains muted despite tech weakness, with emphasis on dealer positioning, sector rotation, and key support levels in the S&P and Nasdaq. He also discusses how traders might structure hedges and why the rotation trade still argues against an immediate broad selloff.
Speaker A
The issue for traders now is that the volume complex has not woken up, I would argue.And the VIX is not, you know, the VIX doesn't give you an accurate representation really of what's happening with volume.Right.The VIX is up because the market is down.And as the market goes down, we slide up the skew curve.So that naturally makes the VIX go higher.So we look at fixed strike vault to tell us what's actually happening in the volatility surface.And you know, the, the, the risk here is that the S P finally starts to wake up the equity rotation which the S P has been benefiting from.You know, traders have been selling tech going into Staples, financials, utilities, whatever it may be.Right.That rotation has been underway and I Think that's kept the S P not just obviously the price realized, volume muted, but also the implied ball.
Right.So the vix hasn't really spiked like it should or one would think given the tech kind of calamity.So risk here for the market, for the overall equity space is that that rotation trade stops, so you lose the tech bid and then you start to not have that equity rotation.And instead of having equity sector rotation, you go from hey, I'm going to buy Staples and financials here and sell my tech to I'm going to go to bonds.Right?Because maybe that's interesting.And I was looking at some of those compound wealth guys who are, know, they put out pretty notes and they're pretty sanguine individuals and they're talking about, hey, bonds seem great because the sell's been pretty high.And so you start to see that permeate here.Right.Someone in our discord channel is like T bill and chill.And you're like, it's not a bad strategy now because you're getting an okay yield on T bills now relative to inflation, who knows, yada yada yada.
But in the short term, if you're going to get an equity drawdown, a pretty big equity drawdown, then yeah, T bills make a ton of sense.So, yeah, so photo indk.The SPX barely hit compared to the socks, which is down so much.That's true.I mean, I can't.
This, this bar in intel is just shocking.And you know, you read through what they reported last night and it's just, it's awful across the board.Like, it's not a, it's not a.Like Amazon, Google there is like, hey, we're investing in our business because we're trying to hit the COVID off the ball.Intel is basically like, we can't even do the basic stuff right.And so, you know, just an awful, you know, quarter.So I, I don't know that that's even part of the isolation trade.I, I was doing a quick scan to see when the last time, you know, their 18th biggest company in the S&P 500, I believe is what it is.I, I can't remember or I was trying to find the last time a company that is that big in the S&P 500 dropped 30%.I mean, that is staggering.
Really kind of, you know, really kind of shocking.Now Amazon, it's only down 2%.It's actually bouncing.That's not too bad.Meta, which was just getting, I mean, brutalized, I would say, over the last month.Look, that's kind of flattish.Now Google, you know, down a percent.That's not horrible.Nvidia.Okay, 3%.That chart certainly doesn't look great.You know, I had driven, drawn this random wedge going back I don't know how many years ago now and just projected it and I forgot to delete it.And it was just kind of fascinating because you can see it's still holding, that it's actually finally broken that wedge, I should say.Tesla, which has been a star child I would say, of the equity spaces, it started to break higher on merger, you know, rumors or whatever it may be.Okay, it's down 3% but not, not all that bad, right, relative to some of the poorer components here in the tech space.
And S P trying to stage a little bit of a comeback here now.What, what, Excuse me, nasdaq.So what is the deal with the NASDAQ itself?I want to highlight this chart because it's, it's pretty interesting.If you go and look at our Q. Q. Q.Equity put positioning from the founder's note this morning, I'll bring that up here.Now what is so interesting about this model or unique about this model, excuse me, is that this is based off of our dealer positioning.Right.So what does that mean?We monitor where we think the hedge funds are positioned in terms of OI and open interest.
We have a really great model for that.And then we're showing how dealers have to hedge that.So dealers are short gamma down below here, as you can see from basically 700 all the way down to 670 is a really big strike.What does that mean?That means that hedge funds and retail own puts.
So this is not a naive GEX model like an AI slot model that now they're kind of ubiquitous.This is actually showing you what I think the positioning is.Now what we've pointed out in the founders of this morning was this interesting law, a trough in negative gamma.So negative gamma built down into around 695 and then it alleviates or resides up under that level.Now it's still negative below that strike.
But I generally think that this is going to be a signal that maybe it's the oversold level or kind of the spot where tech may pause.And we wrote that this morning at around 7:30 or 8:00 clock this morning.And you know, if you look at where the, the NASDAQ is kind of pausing right now, it's right in that 94, 95, 96 area.So I think that lines up really nicely now if tech starts to rally, the question is do some of these other sectors, which you know we're carrying the market, do those start to rally?And what do you see here?You see XLP up 1%, XRT up, XLU up, XLE up.So the rotation trade is still in play.This has not been taken off the table at all.So if you're kind of positioning for like a Black Monday or giant broader based sell off in the S P500, the early signal here doesn't look like that's set to happen.
Why is that again?
Because the rotation trade is still playing out.S P is always going to drag because of the fact that those top tech stocks are down so much.But there's clearly the rotation trade in play.The Vols are waking up a little bit.So one man's sort of rich equity.Vols could be a great opportunity to sell.Whereas at the same time, you know, we've talked about this a lot where the volume complex warms up, right?It's like a motor, it gets kind of like it gets warmed up.It runs for a minute and then we spike.It's not like we go from super low volume to Vix 80.Right.We tend to stage and kind of have this stress response before things kind of get ugly.We're below the S and P risk pivot which we've held at 76, 90.Obviously that that suggests higher levels of volatility.
But the volume complex, not super responsive.
We're still seeing the equity rotation, which is good, I would argue bullish for stocks here.If you look out in time, what do you see?This is looking at all expiration flow.It is negative gamma on down below.But the volume complex is not doing a whole lot at the moment.The rotation trade is still in play.So it's hard to want to be pressing your shorts here in the S P because of the dynamics that are laying out.In other words, I think if I gunned ahead, I think this probably bounces as opposed to continue the software.Now where would I admit that I'm wrong?I think if we lose 7,600, that suggests that we're going to have a test of 7,400.
So if we look at the gamma positioning here in the spx, there's two interesting things I want to flag.Number one, this line, the solid line is all expiration order flow.If you take the 0dt positions out, today's positions out, you end up with this dash line in the GEX positioning.So what that shows you is there's a mild Positive gamma position now kind of in 60775 up to 7700 kind of around.I'm looking at this dash line and that negative gamma kind of builds down into 7,400.
So I think if we lose 7, 600, you can see right around 7,635 right where the S P has been churning.If we lose 7, 600 then that, then we're probably going to test 7,400.And so I think you could put on some interesting, put flies and some maybe structures like that around that level and that positioning for next week.In the short term, I think if you're long tech puts right now, I do think you want to monetize those puts, roll them into shorter dated put flies or some other type of protection.Like you don't have to remove that positioning, but you do want to take advantage of that relatively spicier NASDAQ volume.
But I do think you want to monetize to put it, put positions here and roll them shorter.
The discussion shifts to oil, rates, and bond volatility as potential triggers for a broader market move. He outlines possible option strategies for today and next week, while also noting event risk from upcoming economic data and earnings.
Speaker A
Now oil is up as you can see here.And the reason that we're talking about oil is because if oil does break out and start to move higher, then that suggests that the rate complex could move higher.And if rates move higher than this rotation trade, you can see all these ETFs over here that dies, right?Home builders are probably not going to go up anymore.
Healthcare is probably.I mean, look at that move in.Healthcare is just sort of, sort of unbelievable, right?But some of these other sectors that have been really benefiting are probably not going to go much higher.And you know, so what we want to do is pay attention to equity volume now or, excuse me, rate volume.
Now you could look at the move index as a signal for rate fall, but you can also look at the TLT VIX and the TLT vix.Yes, it is up and it's been up over the last month or two.As you can see on this screen, this is the daily chart of this.But if you zoom back, really the rate volume is kind of dull right now.This only goes back to 2025 on the chart here.But you can see we're at the bottom of this, of this area or this range, so to speak.Now if we look at the actual move index itself, I think we can go farther back in time.And so you can see, okay, you know, 2022, we started to really peak up.So you know, the question you have to ask yourself is are we here and we're in 2022 and the rates are going to start to really jump.
And if oil really moves up and credit stress starts to peak up, then yes, we're going to see this move move higher and we're going to end up at the 22, 2022 type situation.
But.Or we could be in this 2025, 2026 situation where this is sort of a short term flash in the pan.Right.I don't know what that answer is, but what I suggest is that if the move index, if vix, TLT and rate volume starts to go up, then the equity rotation stops, then you start to get much more of a broad based sell off in stocks.And so yeah, Brad, I'm looking at put flies for next Friday.
I'd kind of maybe something like 7450, 747350 like that in the S and P. If you go farther out in time, you can widen those strikes out, slide that structure down a little bit.But the point there is sort of saying I want to move to some cheap hedges.I want to anchor on that 7,400 being a potential low in the equity space.So that's the idea there.Now if you have to hedge a portfolio against a 20 drawdown, those put flies don't work.Right.You'd have to do you have to do some other things to try to protect yourself there.But the overall point here is I don't think, I think that we're probably going to bounce here in, in the market today.I don't, I don't see signs that this is going to continue to spill over.And I always hesitate to say this because I don't want people to get all bowled up.
There's a huge week next week.In fact, if you look at the events for next week, you have ism, midterms, jolts, adp, ism, nfp, all the acronyms are coming your way next week.And so you know, this is not a, I'm not sticking a, a stake in the ground here saying let's buy stocks because the bottom is in.I'm saying I think we probably go ahead rally today a little bit and then next week we'll see what are some of the other good ways in the equity space to other stocks you can play.I've been very vocal about bitcoin.
I shouldn't say very vocal.I've said several times recently that I like IBIT as a hedge against downside equity action.And if you look at where the Vols are, and I think this is, you know, they're higher this morning, but this bitcoin volume is very cheap.I said it's on Tastytrade said in our founders notes a few times and the correlation between bitcoin and the S and P has been very high.So I like that as a cheaper way to buy downside hedge protection.It's a speculative way.I wouldn't hedge my you know my core portfolio against a giant margin call there.But if you're looking for playing some downside I like that idea in ibit now the crypto complex is literally on fire right now.I'm going to cover that here in a minute.That's part of the title of token trouble because you have the AI issue right and then you have the the crypto issue.
We'll cover that here in a second.So I love the downside there.Spiders are now that ball is a little more expensive compared to the QQQ.This IV rank is 41 quite a bit more rich.Well if we go and look at top stocks and say I'm the kind of guy that wants to buy some dips the the Tesla implied volume is still the cheapest you can get.I still think January like 25 Delta calls are really interesting because if the equity market rallies I think this goes with it.If you get SpaceX Tesla merger talk picks up a little bit.I have no idea but if it does I think those calls could pay and that is the cheapest upside equity exposure there is some of this other stuff obviously with earnings coming up much more expensive on a relative basis.You know Google has come down quite a bit in its IV rank.
It's still fairly elevated after that sell off.So you know I really think that I will look at for upside Tesla spider calls.I don't mind I would do call spreads there as opposed to calls you know IWM even potentially that's showing an IV rank of 9 if you want to play rates coming down in the equity rotation trade.I don't I think IWM calls or call spreads.No I even going out to decent January kind of set them and forget them and let that go can make some sense.Look at some of the stuff like Meta still very expensive.
If you think there's going to be a bounce here do you maybe want to sell put spreads potentially.The issue is that you know are we all clear here or not?It's.It's not, it's not super obvious what's going to happen.If you like these stocks anyways though you're like hey I'd like to buy the dip in Meta or Even potentially Google saying that you want to sell some put spreads here.
I don't think that's a terrible way to play it either.Same thing with Cat, which was beat up fairly recently as well.So you know some of these stocks, if you're like hey, they're on my shopping list for a while just waiting for the drawdowns.I don't think that selling puts is a terrible idea in some of those names.But as far as long calls, I like, I like Tesla still as my, as my favorite upside player upside proxy and so that is that.
Now what about for today?You know what is interesting is we try to parse through what could happen.I think call flies playing a pretty substantial rally, you know maybe even up into 7700 for today could be interesting.I lost my screen there.Let me load that one back up.
That's quite high but I think doing something like 77, 76, 75, 77007725 0gt call flies or one by three by twos up in that level.I think those could be decent bounce plays for today.You could probably do them for pretty cheap and the risk reward is pretty good.I think the same thing in Nasdaq if you want to do that betting on some upside.If I'm wrong we do break 7600 then I want to add those put flies for next week targeting a move to 7,400.
I think the risk reward that of those could be pretty good.They'd be cheap right to put on or they're likely quite cheap to put on for something like a Tuesday or Wednesday.Also know that due to the election next week, any options that you buy for, you know, post election, the volume is going to hold up a little bit better in those things.Right.So you know, pay attention to that.
Look at the implied volume here for, for Monday, you know before the the major events kick off here it's at an 11.I mean that is just really quite low and and you know it just screens that the market is really not very concerned about what's happening here at this moment.Keep losing my screen share here.So probably having a little bit of a issue with the tech side but here you can see the big bump for 11 3.If we add forward implied volume you can how much volatility traders are pricing in here not just for 113 but also for the data coming out on 114 with ISM services that pre that looks pretty big.You're also going to get Apple earnings next week as well.So toss that into the mix.So there's a lot of just that cyclical monthly data that comes out that has implied vol pricing likely higher for next week.
And right now you could see, I mean if you were expecting Black Monday or something, you would think that, that at the money implied volume would be higher than an alternative 11 and it's just not like the, the market just really doesn't seem to care about this right now.So I do think the potential for a market bounce again for today is kind of in place and I do want to shift and roll any put positions.
I had a few on that I've, I've sort of rolled.
The speaker turns to crypto, highlighting the Binance hack, weak sentiment, and the close correlation between bitcoin and equities. He explains why he views bitcoin-related products as a speculative downside hedge while warning that the whole complex looks fragile.
Speaker A
Let's talk about the crypto space because it is just a, it is a, that's the market cap.I don't want that.It's garbage.
That being said, with everything that I laid out, bitcoin's only down 1.2% which is shocking to me.There was a six billion dollar hack yesterday, as many of you know, in Binance, that was in Ethereum.But that's just this crypto doubt.The other thing about the crypto doubt is that if we're all worried or people are worried about AI hacking everything these days, right?And security issues, and there's nothing less secure than the crypto space.
I mean you have cold wallets getting hacked, you have finance.What I read was a developer left his laptop, his laptop got compromised and that was enough to sort of remove the $6 billion.And now, now Binance says you're whole and who knows, right?It's just, that's just a, it is an absolute disaster.Now you have that situation in the face of the higher energy costs, which I think is not great for bitcoin mining, which is a whole, I guess, I suppose an entirely separate topic, I'm not qualified to get into that, but that's one of them.
Then you also have the issue of just risk off in general, right, where crypto is not immune to risk off sentiment.So you know, you kind of look at this and if you weren't familiar with the, with the analogy to the S P500, I mean these two things have, have, have really tracked each other, you know, pretty closely over the last three months.So if you look at this, you know, you know, there was the crypto legislation, I believe that came out that got bitcoin this pop.But you look past that, I mean these two things are moving almost in lockstep.So my argument here with like, remember how Ibit, which is the Bitcoin ETF ball was so cheap.
If Spider goes down 3, 4, 5%, I would think Bitcoin goes down 5, 10, 15%.Right.And that's why I really liked it as a downside hedge.You can see again, blues S and P candles is bitcoin.But look what happened in MicroStrategy.It's now down 8%.The CFO retired.I don't know why the CFO did.They said for personal reasons.Generally speaking, that's probably not good.He's out on November 5th.Coinbase.I don't know if the plan was for Coinbase.I don't, you know, Brian Armstrong and a couple of the executive announced share sales like 25 of their sales.Now some of these guys just, you know, as part of their wealth management strategy doesn't necessarily mean something about the stock.But still they've come out today and said, hey, we're going to start selling some stock.So you have the bitcoin head, you have the bitcoin or, excuse me, the crypto hack, you have the CFO of MicroStrategy resigning, you have Coinbase shares share sales, right?
I mean, what is, what are you hoping for here?You have the potential for more hacks in the, in this age of AI.And I'm kind of, you know, I am indeed talking out of, of my, you know what, a little bit on that, but it just seems not great.Right.And so look at the price action here in Coinbase.I mean, this thing looks like it's going to revisit, I don't know, these, these real lows here at 50 MicroStrategy.I've been pretty vocal about how much I don't like this stock because, and I wrote an article about this on Twitter and you can find it.And the issue with MicroStrategy being that they sell all these calls or they historically sold all these calls to monetize the Vol to buy Bitcoin.
And now what they did is they sell so much calls, everyone know they're going to do it, that the call wing now is got smashed and there's no Vol left.So now they've shifted this other perpetual scheme just to try to keep this thing going.And man, I don't know, I mean, if we end up with some ultimate money printer situation, then maybe you get that, that right tail going back in Bitcoin right now.But it just seems really, really like a tough situation for that complex.And ibit, which is down quite a bit more than Bitcoin here, you can see it's down 5% these are the options I'm saying I think are pretty cheap as a downside hedge here if we continue to drop lower in overall market.
So that's the, that's the breakdown for right now.
He wraps up with a recap of key levels, preferred trades, and the impact of oil and geopolitical risk on equities. The final segment reviews notable options flow in names like Oracle, Google, QQQ, and SpaceX, then promotes the opening setup report and related research tools.
Speaker A
S P is pulling a little bit lower to 7616.You can see here.Again just to sum this up, if we lose 7,600 then I want to put on some put flat put flies for next week betting that the market will hit around 7600 excuse me, 7,400.I did.
I do like Tesla as an upside play right now.I do think selling puts in some of these big names if you were willing to buy them anyways makes sense.Some of the MAG7 type stocks the below 7,600.The other proxy I want to watch is bond volatility.You can see oil now moving back higher which isn't helping the situation in rates and just equities in general.
If we do get some sort of new hot war obviously in Iran that's going to I think obviously push equities lower as well.So that's just another dynamic that I'm not qualified to talk on.But you can't help but watch crude push higher.No, that's not positive for four stocks.So keeping an eye on that.
Last but not least if we were curious to know how some people positioned yesterday into this, this selling in Amazon, intel and the like opening setup is our new report.This shows you how the buy side shifted their options positions day over day.So you see print slop out there all the time like somebody bought these calls, somebody bought these puts.Well it's not always a buy side entity buying or selling on the Oprah feed right that everyone watches sometimes a market maker trades against a market maker for example.So what we do is we have an algo that parses out who did what and we look for the biggest buy side positionings.And so what I wanted to show you here is a couple of interesting trades.The first one is this really big Oracle put spread for 2027 December of 2027, $24 million 14100 put spread.
Now this could be a hedge against something else but no, you know, who knows but it is a really large Oracle put position.Oracle was, you know the real poster child of stock market gains as it spiked after its investor day.Well that obviously completely unwound here.As you can see that 145 to 148 level completely gave way and now we're down around 130 as the AI complex comes under fire.We did see Google long call buyer.This is for December of this year, the 320 call.Somebody spent 3 million bucks there.We also saw QQQ puts being sold.Now this was yesterday before the Amazon intel kind of debacle.But they sold these pretty big put spreads here.Those that were out of the money put spreads is now an in the money put spread.So that's fairly large.And then the other one, SpaceX long put was a new one.
So that's kind of interesting that with Volat 1 month low in SpaceX so pretty interesting downside spread trade there.So some interesting shift positioning shifts in these tech stocks that we're watching now is another name that has been kind of beat up Long call buyer there.So pretty, pretty fascinating position shifts and some of those names here.You also get a real nice IV scan of where's what's rich and what's cheap on a relative basis and then a quick look at some upcoming earnings.Apple only implied move of 3.4% pretty low.You can see the history there.So this is a really great report.If you're interested in getting this report all you have to do is go to spot gamma.com openingsetup and in fact I think I have a little QR code loaded up here so you can scan that.There it is, spotgame.com opening setup at the bottom there of your screen as well scan that QR code and then you can get this opening setup report five days for free and it shows you latest and largest of options.
Buy side positioning.Now if you're a spot game a subscriber you can also go to our Flow patrol which is a 20 page very in depth report on exactly how all these positions shifted across deltas and all the other stuff.But for free you get the opening setup report for five days which I think is quite helpful.All right, that is going to do.