In The OPEX Effect: June 2024, Brent Kochua and Jack Forehand discuss the impact of options expiration (OPEX) on market volatility and specific stocks, such as Nvidia. During periods of low market volatility, significant call positions expiring can lead to increased market movement and volatility. They mention the influence of JP Morgan’s collar positions on the market and potential market consolidation due to the heavy call positioning in the S&P, NASDAQ, and Russell.
The conversation touches upon the current market conditions, including the low volatility across various assets, the significant outperformance of Nvidia, and the missed opportunity for significant price movement in GameStop due to a lack of decisive action from a large investor.
To close, they discuss the unusual price behavior of Nvidia stock and its decoupling from the S&P 500. Historically, Nvidia’s stock performance has been closely linked to the S&P 500, but recent months have seen a significant weakening of this correlation. Brent notes that Nvidia’s call open interest has been much higher than put open interest, indicating significant demand for the stock. However, recent volume data suggests that retail investors have been selling off options, leading to a decrease in both call and put open interest. He also presents a scatter plot of Nvidia’s one-day returns against the S&P 500’s returns, which historically showed a linear relationship. However, in April 2024, Nvidia’s stock decoupled from the S&P 500, with Nvidia experiencing a significant drawdown while the S&P 500 only experienced a minor one. After this drawdown, Nvidia’s stock rebounded, but the relationship between the two indices seemed to flatten out even more in June. The speaker suggests that this decoupling is not driven by fundamentals but rather by positional issues, such as large momentum trades and options complexities in various indices.