Stocks Are Falling. Put Buying Hit a Record. So Why Does an Options Trader See a Thanksgiving Rally? — watch on Excess Returns
Brent Kochuba, founder of SpotGamma, joined Jack Forehand of Excess Returns on The OPEX Effect to walk through record index put buying, a negative gamma regime, and the window that opens once November expiration clears.
The S&P 500 trades a few percent below its high, the VIX ran from the mid-teens to 27 and back inside a week, and index options set a record on November 5 with about 4.5 million S&P put contracts in a single session. Brent Kochuba, founder of SpotGamma, walked through the OPEX put positioning behind it on the latest episode.
Record Put Buying Left Dealers Short Gamma
Options have to be hedged, and that hedging is what pushes the underlying around. Market makers take roughly 90% of the other side of daily flow and adjust those hedges when price moves, when time passes and when implied volatility jumps. With the buy side long index puts in size, dealers hold negative gamma, so their hedging runs with the move rather than against it, which is why 2% to 3% daily swings keep showing up in both directions.
Only 35% Of Expiring Delta Sits In Calls
Measured by delta set to expire, calls make up about 35% of S&P 500 positioning into the November 20 expiration, against the 50% to 70% that is typical and the 90%-plus seen in strongly bullish stretches. Sellers have been pressing calls into the 7,700 area on every rally, and much of that put delta comes off at expiration, which should relieve some downside hedging pressure.
The VIX Curve Flattened Before Anything Broke
The VIX curve flattened over the past week as front-month contracts climbed several points while the back end barely moved, which tends to happen when traders hedge in the near term, where protection costs less in premium terms. Outright backwardation, where the front month prices above longer-dated contracts, tends to mark the full risk-off state. The VIX also sat below one-month realized volatility, meaning the market priced less movement ahead than the index has delivered, and that gap usually closes only once the risk events clear, so shorting premium here is not necessarily the base case.
Thanksgiving Is Where The Volatility Gets Sold
Forward implied volatility, a read on where implied should sit once the calendar reaches each event, spikes into the week of November 17 — with Nvidia earnings on the 17th, VIX expiration on the 18th, the Anthropic IPO on the 19th and monthly expiration on the 20th. The same curve drops hard for Thanksgiving week, because relatively few traders want to pay decay over a holiday and that flow leans short volatility into it, which tends to lift the index through vanna and hedging channels rather than through anything fundamental. Brent sees the setup as path-dependent: the closer price sits to 7,400 into the events, the more thrust a rebound tends to carry, while a rally to 7,700 beforehand spends the move early.
Nvidia: Institutions Closed Puts While Retail Paid For Calls
Nvidia seem to tell two stories on the same session. Institutional flow closed large December put structures while day-over-day call premium rose by close to $500 million, while roughly $111 million of retail calls were bought in the first 30 minutes, about 41 times a normal pace. Brent walked through selling 175, 180 and 190 calls into earnings and using that premium to finance length toward 200, or selling March puts against long upside calls as a risk reversal.
What Would Confirm The Read?
We encourage traders to watch two things. CoreWeave and the other neoclouds broke their link with the Nasdaq in October on credit concerns, and a tech rally looks suspect until they base. The 7,700 area remains the level that decides whether a post-expiration bid has room to run.
The OPEX Effect runs monthly with Excess Returns ahead of each options expiration.
Brent Kochuba founded SpotGamma and co-hosts The OPEX Effect with Excess Returns. He was previously a portfolio manager at Seven North Capital Management, building options-based strategies, and a derivatives broker at Wolverine Execution, Credit Suisse and Bank of America.