“Big Rally Collides with Oil and Rate Reality | What the Options Market Says Comes Next” — watch on Excess Returns.
Brent Kochuba of SpotGamma joined Excess Returns Thursday on September OPEX options positioning, the 7,600 gamma line, oil-rate risk and cheap tech vol.
The S&P trades about 1.5% below its all-time high, and the gamma landscape underneath threatens volatility should prices slide lower. Brent Kochuba, founder of SpotGamma, joined Jack Forehand of Excess Returns for The OPEX Effect to break down the monthly setup before expiration, walking through September OPEX options positioning — and the read is more defensive than it was in August.
Under 7,600: Gamma Turns Negative
Above 7,600 the S&P 500 rests on positive gamma, much of it supplied by 0DTE sellers who lean against intraday moves. Below that level, the five-day projection runs negative the whole way down, with no trough until roughly 7,350. In that negative gamma zone, dealer hedging fuel directional moves: market makers sell futures as prices dip and buy futures back as prices again rally.
With current spot price on the cusp of negative gamma, price does not necessarily need a shock to move lower — higher rates alone can push equities down to the level where dealer positioning takes over, amplifying a downtrend.
A Near-Record Expiration, Measured Properly
SpotGamma puts ~$2 trillion of delta notional set to expire on the third Friday, against roughly 2.1 to 2.2 trillion for the September 2024 record. Headline figures near $9 trillion typically count every contract as 100 shares of stock, including deep out-of-the-money options that virtually always expire worthless. SpotGamma’s approach is to weigh each contract based on the notional delta of each trade, which can moderate the overall size of the upcoming expiration.
The size of this OPEX matters because expiration clears dealer hedges. Around 40% of currently active positions come off the table at the monthly expiration. While that will not fully remove the negative gamma we see below SPX 7,600 it will likely mute it — dealers holding 8 to 10 billion of negative gamma drop closer to four billion after Friday. Behaviour also changes around the event: autocorrelation falls, and a market that trends into OPEX tends to flatline or reverse afterwards.
Oil Is Turbocharging the Rate Move
Crude above 100 and the 10-year treasury yields at new highs are moving together, and the equity market stopped ignoring the link this week. CBOE one-month implied correlation sat at all-time lows in July, when traders expressed AI views in single names and left index vol alone. Correlation is now rising alongside oil and rates.
Rising correlation is the mechanism that carries an oil shock into the index: single names stop moving independently, index vol lifts with them, and the dispersion that suppressed S&P volatility unwinds.
Equity Vol Lifts Off the Floor
A week ago, IV rank for IWM and SPY measured 1 — implied vol lower than at virtually any other point in the past year. Over the following three days downside puts got bid in both names, and QQQ moved from a call-leaning stance to a put-leaning one with IV rising.
Vol lifting off the floor is the part worth watching. When headlines look bad and the options market still refuses to pay for protection, positioning argues for discounting the headline. When hedges finally get bought, positioning — and subsequent dealer behavior — shifts.
Cheap Tech Vol Cuts Both Ways
Semiconductor implied vol has fallen hard. The SMH vol index dropped with dispersion through August, so single-stock tech options are priced far cheaper than they were in late June. All else equal, that may be a reason to own options rather than sell them, with the open question being directionality. With Excess Returns, Brent walks through how owning SMH calls hedged with short-dated put spreads or put flies could play out. He also covered how certain spread structures could pay if the index moves hard in either direction.
What to Watch For Into OPEX?
We encourage traders to watch two things into the September expiration. First, whether the S&P holds 7,600: below it, the negative gamma pocket opens and a 20-plus VIX arrives quickly. Second, whether oil and the 10-year keep pulling correlation higher, since that link is what turns a macro problem into an index problem. A headline that cools the Iran situation flips the setup fast — Brent framed a quick move back toward 7,700 to 7,800 into expiration as the upside case, capped by positive gamma above.
Watch the full episode of The OPEX Effect on Excess Returns.
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.