Episode summary
It Only Happens at Bottoms | Andy Constan on the Options Extreme That Showed Up at the Highs
Excess Returns
· · 57 min · Guests: Andy Constan
Summary
Andy Constan argues that the AI and semiconductor boom has started to look like a speculative bubble because the money required to fund data-center and chip capex is concentrating into a small group of winners while the rest of the market lags. He says the deeper risk is not just valuation multiples, but earnings expectations that may be outrunning the size of the economy and the available “pie” to support them.
He points to unusual options-market behavior as a warning sign: single-stock volatility has surged, correlations have fallen, and out-of-the-money calls have become expensive relative to puts. In his view, that combination is rare near highs and more often shows up in bottoms, which is why he saw an unusual speculative frenzy rather than a normal advance. He says he preferred hedges and relative-value trades over making a direct top call.
Constan also says the broader economy is still being supported by capex and consumer dissaving, but both have limits. He thinks AI may ultimately be very productive over a 10-year horizon, yet the medium term could be messy because the investment cycle, labor displacement, and tariff changes may pressure growth and corporate returns.
Key takeaways
- Andy Constan says parabolic gains in AI infrastructure and semiconductors, plus very high single-stock volatility, are consistent with a bubble regime.
- He argues the real bubble risk is earnings expectations, not just multiples, because the market is pricing more “pie” than the economy can deliver.
- Constan says out-of-the-money calls briefly got bid above puts, a pattern he says usually appears near bottoms and signals speculative frenzy.
- He thinks AI capex is still supporting growth, but the funding burden and weak ROI for many end users could become a medium-term problem.
- Constan says tariff changes due by July 24th could matter for growth and inflation, even if they are smaller than the original “Liberation Day” shock.
Notable quotes
“I think we're in a bubble. I've described this as a bubble and I also think that there is simply not enough GDP to earn money from all the investment that's being made”
“the one big thing that happened over the last really since the war is single volatility exploded higher”
“typically outofthe- moneyoney puts which are something people use to hedge and protect their investment are extremely are much higher bid than out of the money calls”
“what is a bubble is earnings expectation”
“I think there's not enough pie, not even close to enough pie”
How the episode opens
This is our fourth episode of FT's principles where we sit down with our good friend Andy Constson of Dance Spring Adviserss to talk about what he's paying attention to in the markets, what investors can learn from it, and why it matters. We don't have all the answers. He doesn't have all the answers, but he puts out a lot of interesting, thoughtful research that I think investors can can learn from.
And I think Jack, I know, you know, you wanted to start. One of the key things that jumped out to you was some of the uh data that Andy was highlighting around the option market. So, I think that's probably a good place to start and I'll let you kind of get into it.
Yeah. You know, one of our goals here is to educate people and and and I learned a lot from reading this analysis from Andy. Was it about a few weeks ago Andy you put it out?
Yeah. On the 28th, I think. — Okay. Yeah. and you would flag something that was going on behind the scenes in the option market um in terms of the AI infrastructure stocks and the pricing of call options and it's proved to be pretty impression in terms of what's happened since then. So I was wondering if we could maybe take a step back to then and you could just talk about what you were seeing when you wrote that report.
Yeah, sure. I mean just we've talked about this on prior episodes and I think it's all part of the same discussion which is we have this potentially transformative technology that is we're dealing with in the world. Um it is heavily impacting stocks. It's heavily impacting all businesses. It requires a tremendous tremendous amount of compute which to get compute you need chips and a bunch of other peripherals around that.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai options market signals
- semiconductor boom speculation
- single-stock volatility and correlations
- earnings expectations outpacing gdp
- fed put and tariff reset
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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