About this video

• Video Title: Vol Is Crushed. Risk Isn’t | What the Largest OPEX In History Tells Us About What Comes Next
• Channel: Excess Returns
• Speakers: Jack, Brent
• Duration: 00:57:28

Overview

This video discusses the current state of the options market, particularly focusing on the unprecedented volume of zero-day-to-expiration (0DTE) options and their impact on market dynamics. The speakers analyze historical expiration cycles, extreme call skew, sector positioning, and the historically low levels of realized and implied volatility. They explore how options flows influence equity moves and discuss potential market reversals, the VIX futures curve, and the role of significant option positions like JP Morgan's collar.

Key takeaways

• Dominance of 0DTE Options: Zero-day-to-expiration options have reached record levels, making up a significant portion of daily S&P volume and influencing market stability by suppressing short-term volatility.
• Largest OPEX Approaching: The upcoming options expiration is poised to be one of the largest in history, potentially leading to significant market shifts.
• Call Skew and Positioning: While call volume is high, indicating a bullish sentiment in line with all-time highs, call prices remain relatively low, suggesting that traders may not be excessively bullish in their positioning.
• Volatility Suppression: Historically low realized and implied volatility, particularly in short-dated options, is a key theme, driven by 0DTE flows and positive gamma environments.
• Options Market Influence: The increasing volume and significance of the options market are shown to have a substantial impact on the underlying equity markets, with some suggesting derivatives are now the primary driver.
• Expiration Cycles and Reversals: Historically, market direction tends to reverse around two-thirds of the time during options expiration, and this cycle is being closely watched given current market conditions.
• JP Morgan Collar and Key Levels: The JP Morgan collar at 6,500 is identified as a critical level to watch, with negative gamma below it potentially leading to a significant downturn if breached.
• Disappearing 0DTE Flows: A spike in volatility is expected to cause a significant reduction in 0DTE flows, which could act as a destabilizing force in the market.

The "honey badger" analogy in the video refers to "dip buyers" in the market. Just as the honey badger meme suggests it "doesn't care" and perseveres regardless of circumstances, these dip buyers are portrayed as consistently buying assets whenever the market pulls back, irrespective of the underlying data or broader market conditions. This behavior contributes to the market's tendency to grind higher.