“The 10-Year Hit 5.35%. OpenAI Came Up $20 Billion Short. So Why Is Nobody Buying Puts?” — watch on Excess Returns
Brent Kochuba, founder of SpotGamma, joined Jack Forehand of Excess Returns on The OPEX Effect to explain why equity positioning has stayed calm through 5.35% 10-year treasuries and a wobble in the AI trade.
The 10-year treasury yield touched 5.35% before easing back toward 5.25%, oil has plateaued near $90 after trading at $104, and the S&P 500 still sits very close to all-time highs. Equity volatility has barely acknowledged any headwinds, and single stock put selling is a large part of the reason. Brent Kochuba, founder of SpotGamma, walked through the positioning behind the market’s unusual calm.
Realized Volatility Sits Near Record Lows
One-month realized volatility in the S&P 500 measures 10% and five-day realized volatility sits at just 8%, which works out to daily moves of roughly 50 to 60 basis points. VIX near 15.5 looks only modestly rich against realized volatility: the spread between one-month realized vol and VIX has historically run about 3.5 points, putting “fair value” for VIX closer to 13 or 14.
Put Selling Keeps Dealers Long Gamma
Hedge funds and retail traders have kept selling puts in the largest single names, and dealers take the other side. Holding those puts leaves dealers long gamma, so their hedging behavior causes them to trade against price action, selling into strength and buying weakness. This hedging environment therefore dampens daily price ranges. Index flow points the same way as traders are net sellers of index puts, a stance that has tended to coincide with positive forward equity returns.
The AI Trade Lost Some Call Skew
OpenAI’s annualized revenue came in near $50 billion against roughly $70 billion expected, and the Nasdaq fell about 1.5% on the headline while SMH has given back 7% in three sessions. The more durable change showed up in skew, where Nasdaq call skew dropped sharply from the top of its range and day-over-day skew in Apple, Microsoft, and Reddit moved the same direction. Positioning still remains call-weighted rather than defensive, so this looks like a rerating of upside expectations rather than a rush for protection.
Expiration Tends To Release Compressed Volatility
October expiration carries roughly $1 trillion in notional value, smaller than September’s quarterly expiration yet still quite sizeable. Expiraiton flows are weighted about 66% to calls in the single-stock space. Price has tended to mean revert after expiration close to two-thirds of the time, and realized volatility compresses into the event before expanding out of it. With gamma supportive and daily ranges tight, Brent views wider trading ranges as more likely after OPEX clears on October 16th.
7,700 Is The Risk Pivot
Below 7,700 the gamma profile turns negative, where dealer hedging amplifies moves instead of damping them. This means that SPX 7,400 comes into view if an event supplies the push — a hot CPI print, a weak mega-cap result, another leg higher in rates. To the upside, resistance into Friday’s expiration sits near 7,825 with little structure above it. This leaves room for a move toward 8,000 if rates settle.
As part of the OPEX Effect show, Brent walked through both November and December NVDA calls. Upside exposure is currently priced cheaper than the equivalent moves in the S&P 500. Similarly, IWM put spreads could be effective at expressing downside views, since small caps are the most rate-sensitive of the major indices.
What Would Confirm The Read?
There are two things to watch into the October 16 monthly options expiration. The first is skew: traders should watch for any slide in tech call skew and any spike in single-stock put buying, which would mark the positioning change that has been absent since March. The second item to watch is the SPX 7,700 strike, since losing that level flips dealer hedging from a brake into an accelerant. CPI on the 13th, FOMC at the end of the month, October expiration on the 16th and VIX expiration on the 20th provide the market with plenty of chances to begin moving either way.
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.
Watch the full episode of The OPEX Effect on Excess Returns.
The OPEX Effect runs monthly ahead of options expiration with Brent Kochuba of SpotGamma and Jack Forehand of Excess Returns.