Episode summary
The Volatility Shift No One Sees | What the Options Market Says About What Comes Next
Excess Returns
· · 1 hr 1 min · Hosts: Jack Forehand · Guests: Brent Kochuba
Summary
Options expiration and dealer hedging are doing more work in this market than many long-term investors realize. Brent Kochuba argues that the surge in options volume since 2020, especially zero-DTE trading, has made dealer flows a major driver of short-term equity moves, intraday volatility, and even apparent changes in market leadership. He says the January OPEX is large enough to matter because it clears a meaningful amount of S&P gamma and single-stock positioning, creating the possibility of a post-expiration shift in market behavior.
A major theme is that volatility selling can look profitable until it suddenly is not. Kochuba revisits the Captain Condor trade as an example of a strategy that sold daily volatility, doubled down after losses, and eventually ran into the sort of tail risk that options pricing can hide when implied volatility is low. He uses that story to show why options levels, dealer positioning, and expiration dates matter even to investors who never trade options directly.
He also says the market is sending a warning through correlation and volatility metrics. Index volatility is low relative to single-name volatility, which he reads as stretched bullishness, and historically that setup has often preceded corrections. At the same time, the loss of hedges after expiration can either release upside or remove support, so the next few weeks are framed as a likely turning point rather than a stable continuation of the recent rally.
Key takeaways
- Brent Kochuba says options volume has grown about 150% over the last five years, far outpacing stock volume, and that dealer hedging flows now influence equity prices.
- He argues that January OPEX is unusually important because roughly 35% of S&P gamma may come off and some single-stock delta hedges may unwind.
- Kochuba says the market is showing a stretched correlation setup, with index volatility very low relative to single-stock volatility, which has often preceded corrections.
- He uses the Captain Condor collapse to warn that selling volatility and doubling down into low-IV environments can produce catastrophic losses.
- He expects expiration to matter most over the next one to three weeks, not as a long-term forecast but as a short-term catalyst for reversal or continuation.
Notable quotes
“Every time this metric crosses eight it's a signal that the equity market is due for a correction”
“What happens is when the market goes up, market makers sell into that rally”
How the episode opens
These flows behind the scenes make a difference not just for people who are involved in options but for people like me who have never made an option trade in their life. Since co options volume has d has uh grown massively. Um this was through you know the rise of the gametop trading and everything else but also zero DT options.
Every time this metric crosses eight it's a signal that the equity market is due for a correction. Sometimes that correction can be pretty violent. Other times it can be a little bit more mild.
We're not at one-year lows as you could tell on this chart, but it's really very low and it's getting lower, particularly the S&P. But what is interesting to me and what catches my eye here, Jack, is that implied volatility is starting to lift, right? And it's starting to lift over realized.
In other words, the two are bifurcating.
So Brett, small caps are back. I don't think you have that in your presentation, but I'm putting it in the beginning anyway. — Yeah. Uh this is where we're at now where the start of the opex is a conversation about how small caps are ripping. So um I think what we've said in the past is when small small caps and value becomes in vogue we're going to have to change roles here and you're going to make a presentation. So maybe Feb opex will be uh Feb opex by Jack Forehand.
Yeah. Yeah. I I don't know. I'll probably keep the viewers for what like four or five minutes before they will have like the lowest average watch time in the history of our YouTube channel. But nonetheless, yeah, I'm I'm more than willing to ramble on about whatever topic I need to ramble on about.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- options market flows
- zero dte options
- dealer hedging and gamma exposure
- volatility dynamics
- january options expiration
Companies and tickers mentioned
- SpotGamma
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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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