Episode summary
This Only Happens in Markets Down 30% | Brent Kochuba on the Rotation You're Missing
Excess Returns
· · Hosts: Jack Forehand, Brent Kochuba
Summary
The episode argues that the market is far more unstable beneath the index level than it looks from the S&P 500 headline, with single stocks swinging violently while the index barely moves. Brent says this is being driven by options positioning, dealer hedging, and the growing use of zero-DTE and single-stock expirations, which are changing how prices behave in the short term. He describes the current setup as a "wildest calm market" where realized volatility can look muted close to close even as intraday swings and stock-level moves are extreme.
A major theme is that February expiration looks important, but not enormous, with put demand rising and skew lifting as investors start hedging downside rather than panicking after the fact. Brent says that kind of early put buying can add downside convexity if the market starts falling, especially with volatility still low enough that hedges are relatively cheap. He also points to a regime shift in rotation: software and parts of tech are weak, while bonds, value, energy, defense, and some small-cap areas are attracting flows.
He uses silver, gold, Bitcoin, and software as examples of assets moving from crowded bullishness to sharper mean reversion. The broader message is that the market may still be in a range, but correlation, skew, and sector rotation are warning that risk is building rather than dissipating.
Key takeaways
- Brent says the market is showing extreme stock-level volatility even though the index is barely moving, which hides risk in close-to-close metrics.
- He argues that options hedging is increasingly shaping short-term price action, especially with Monday, Wednesday, Friday expirations in major single stocks.
- Brent says S&P skew is lifting, which suggests investors are beginning to hedge downside before a bigger selloff, not after one.
- He sees software and tech as the main weak spot, while long bonds, value, energy, defense, and some small caps are holding up better.
- Brent says February OPEX is meaningful but smaller than March, so the larger quarterly expiration could be a more important turning point.
- He expects correlation and VIX to rise together if the current setup resolves into a 3% to 5% drawdown.
Notable quotes
“What they're showing here is that stocks are moving at just insane amounts, right”
“this has to be may maybe the wildest calm market of all time”
“the reaction is more extreme now because of the positioning and the flows”
“people are starting to hedge and this hedging can create downside convexity”
How the episode opens
What they're showing here is that stocks are moving at just insane amounts, right? The average uh stock there is moving 10%. That's just the average.
Uh some of those are moving obviously way more. And the index is not doing anything. If we were down a percent like we are now and and that skew didn't lift at all, what does that tell you?
No one's hedging downside. They don't care, right? And that's a sign in and of itself.
If you were having this panic fear wash out, you would think that IV would be way up here. At which point then, Jack, I may be like, maybe it's time to buy that dip. But we're not seeing that wash out.
So if you're like what did what is 10day realized well you'd measure the S&P close to close to to as that input. Well on a close to close basis there's so much mean reversion now that the volume doesn't seem that high. But if you look at the swings intraday you know we'll have one to two% swings intraday and then the market only closes down or up 20 pips right and you go you know that ball is hidden by those metrics.
the reaction is more extreme now because of the positioning and the flows and so people think it's more important and that's kind of one of the things I think is happening in software stocks.
So Brent, I think this has to be may maybe the wildest calm market of all time. Is that is that a good way to describe it? — I think that is actually a fact Jack. That's a fact Jack actually. I didn't mean to do that but uh you probably heard that your whole life.
I have.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- options market impact
- dealer hedging flows
- zero dte and opex cycles
- put demand and skew
- sector rotation and hidden volatility
Companies and tickers mentioned
- NVDA
- TSLA
- Nvidia
- Tesla
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Excess Returns
-
We Asked Fidelity’s Director of Global Macro Who Wins If AI Spending Slows -
An AI Bubble Could Hit Stocks. Inflation Could Hit Bonds. How Do You Diversify and Keep Both? -
Tech Is Priced for a Boom. 86% of the Economy Grew 0.7%. What If AI Slows? -
Tech Is the Cheapest Since 2022. Walmart Is 46 Times Earnings. Where Is the Bubble? -
This $1.5 Trillion Manager Expects More Fed Hikes. So Why Is He Still Bullish? -
AI Stocks Cracked. Margins Could Be Peaking. So Why Is a Liquidity Expert Watching the Debt Wall?
Excess Returns, this episode and its artwork belong to Excess Returns. Octagon is not affiliated with the show; this page is an independent summary.
