Morning Call Sheet: Rates, oil and AI put markets under pressure — watch on CNBC
Brent Kochuba, founder of SpotGamma, joined CNBC on Wednesday, September 16 to read AI stocks options positioning, bond ETF put skew and rising correlation.
Two weeks ago, traders paid up for calls across the big AI names. By last Friday, this dynamic flipped and traders began selling upside calls again. SpotGamma founder Brent Kochuba joined CNBC on Wednesday (September 16) to discuss what AI stocks options positioning shows us about that flip.
Call Selling Arrived After The Tech Stock Breakout
Two weeks ago, the top AI names pushed higher and call buying followed by steadily heading upwards. Last Friday, options flow began to run the other way, with heavy call selling across the same names, and several of these stocks have traded lower since.
Call selling is not necessarily a bearish bet. An investor who owns the stock may sell an upside call, collecting the premium while capping the total gain. This says the holder does not expect a much larger rally. However, call selling does not mean that the holder expects the stock price to fall. Downside bets typically involve selling the stock or buying a put.
Correlation Is Doing The Driving
Correlation has lifted alongside the shift in tech stock call buying. When correlation rises, the largest stocks tend to move together, and the macro picture sets the direction for most stocks. Rates and oil are now doing that work as macro drivers, which clouds the single-name upside traders were paying for two weeks ago.
Brent reads the setup as capped rather than broken. If the rate and oil pressure cools, the bid for tech returns quickly, particularly into midterms.
Bonds: Put Skew Lifted With Hike Odds
A week or two ago, options on the liquid bond ETFs priced close-to-neutral, with downside protection costing about the same as upside calls. That dynamic has also changed. Put skew has started to lift, so traders now pay up for puts relative to calls in those funds.
Downside in a bond ETF means higher yields. The shift arrived as oil broke above $100 and rate-hike odds climbed on last week’s economic data. Nervousness in the bond complex shows up in what downside hedging costs, often well before it shows up in the price.
What Would Change The Read?
We encourage traders to watch two things from here. The first is whether call selling in the top AI names keeps coming as rate and oil pressure evolves; a return of call buying would mark the ceiling lifting. The second is whether put skew in the bond ETFs settles back toward the neutral pricing of two weeks ago, which would take the yield worry out of the hedges. Falling correlation would point the same way, with single-name stories driving again rather than the macro.
Brent Kochuba founded SpotGamma and appears on CNBC. 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.
Watch the full segment on CNBC: Morning Call Sheet: Rates, oil and AI put markets under pressure
Brent Kochuba is a CNBC contributor and joins the network’s Call Sheet panel.