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Watch for the Bounce in Equities: Brent Kochuba, Spot Gamma (Szn 4, Ep 7)

Last updated on March 17, 2022

Brent Kochuba of Spot Gamma joins the podcast to discuss his view that there will likely be an equities rally into the March 18 options expiration.

This podcast was recorded Wednesday afternoon, March 9, 2022, and made available to premium subscribers that same day. Become a premium subscriber today by visiting Contrarian.Supercast.com or our Substack. There are many benefits beyond getting podcasts a few days (or more) early and not having to deal with annoying ads or announcements.

Content Highlights

  • Stocks have been selling off with the Nasdaq now officially in a bear market. But the guest is short-term bullish for reasons that can be traced to market makers hedging counterparty risk (2:39);
  • What about all the uncertainty with Russia-Ukraine? (5:57);
  • Stocks are up since the start of the Russian invasion on Feb. 24, likely because markets were hedged going in due to Fed tightening concerns (9:28);
  • What to make of the March 9 rally? A brief primer on gamma, vanna, and charm aka delta decay (11:02);
  • Similar gamma squeezes caused rallies in the past around options expiry (15:20);
  • Background on the guest (21:31);
  • The hedges investors have put on ahead of the FOMC meeting next week should lead to more risk-off. The lower bound for the S&P 500 is 4,100 (24:36);
  • Recent days have seen a change in options flow: Nvidia (NVDA) and crypto names such as Coinbase (COIN) have benefited along with Amazon (AMZN) and the Financial Select Sector SPDR ETF (XLF) (26:50);
  • Liquidity is important and recent months have seen some of it leave the system (30:06).

More Information on the Guest

Video Highlights

Not intended as investment advice. Do your own research, make your own decisions!

Transcript

Nathaniel E. Baker

Here with Brent Kochuba of Spot Gamma, we are going to talk about something that we haven’t talked about yet in the three or four years of this podcast, which is options. I mean, it’s come up a little bit, but this is very much the center of today’s discussion. And Brent has a specialty in the area. But the reason why I wanted to have him on the show is because of this idea that he has it is quite timely right now, in light of the the sell off that we’ve seen in stocks, and the NASDAQ is in a bear market now. Closed there a couple days ago, and the other indexes are in correction. But you Brent are bullish. And you have a specific reason for that. So talk to me about that.

Brent Kochuba

So first, thanks for having me out for this conversation. I look forward to it.

Nathaniel E. Baker

Thanks for coming on.

Brent Kochuba

Essentially, the way that we look at markets is that the hedging flows tied to options positions, and these are big flows, options dealers and market makers, their hedging flows have a lot of impact on the way that stocks and the indices trade. And so when you highlight large expirations, like the one that we have next week, it’s a quarterly expiration That’s March 18. Large positions expire, and consequently, that the hedging flows tied to these large options, positions change. If you think about the way the market has been trading, as of late, there’s a lot of volatility, things are moving very rapidly. And if you look at most of the put positions in the market, they’re all structured right around here, where the s&p 500 specifically his trading, so there’s just tons and puts on and that’s not, that’s not really surprising to anyone listening here, as you know, between the FOMC and monetary policy and everything going on Russia, people want hedges, right, one March 18, we calculate that, if you look at it from something we call, we measure as gamma, about 40% of gamma expires on March 18. So what does that mean? Well, that tells us that roughly a third to a half of the market makers hedging position is going to be removed, because all these puts are expiring. Now, let me take that sort of one step further. And to help clear it up just a little more here. Now, if any of you were to buy a put option, right on the market, you go into your Interactive Brokers account or wherever and you’re going to buy a put, if as the dealer or the market maker on the other side, I’m going to sell you that put right. So I’m sure to put you own that put. And the way that it has myself would be to sell futures or to sell shares of spiders some way to hedge myself, right. So imagine that is done, you know, several million times over that trade. So I’m a dealer, I’m short, you know, millions of puts, or at least hundreds of 1000s of puts, right, and then also on March 18, all the puts are gone, right? They expire, I’m going to be sitting there with no more puts right or a much smaller position. But I still have a very large short hedge on right. So I’m going to buy back a lot of that short hedge, and that that is what we believe will fuel that market higher, right? The function is just basically a short cover rally. And so you had this combination, we also have the VIX here at over just over 30. So, you know, if you were to break that down into an implied move, that’s telling you that the options market is pricing in roughly 2% daily moves, which is more or less what we’ve been getting. So you had the FOMC next Wednesday, and a lot of people are hedging that event, right? How many hikes we’ll get what’s what is it? What is the easing? Well, there won’t there be easing, etc. So that uncertainty is going to come out of the market. I think regardless of whether it’s dovish, or or hawkish, right, we’re going to know, right, we’re gonna get a lot more information there. And then coupled with this very large options expiration, which we believe is a short covering event, because those puts are expiring. So okay, that’s sort of our lens. SAR is a little verbose there —

Nathaniel E. Baker

No, I think you explained it well. And that makes a lot of sense. Now, just to challenge you on that a little bit, because that’s what we do here. So that okay, so that would remove the shorts that a lot of the dealers have on to hedge their positions. It makes perfect sense from a technical standpoint, why the market would rally as the cover those shorts. But this kind of assumes that the market gives them a reason to cover the shorts. And you mentioned uncertainty, we still have an awful lot of it. With Russia. Yeah, the Fed will be removed. Come Wednesday, although you could also argue they’ve kind of telegraphed and move to some extent, whatever. That’s another conversation. But so yeah, so specifically with Russia with commodities. You had this huge move in nickel the other day yesterday that I think nickel trading is closed now for the rest of the week. So a ton of uncertainty. And how does that factor into things? Wouldn’t that lead the dealers to kind of maybe consider holding on to these hedges or? Yeah,

Brent Kochuba

yeah. So that’s a, that’s a very, it’s a, it’s a wonderful point. And to be clear, the most of the work that we focus on is in the fairly short term. So typically, you know, 30 days out roughly is kind of the largest that we look out. But in this situation, what you have is, it’s a, it’s a technical reason for short covering, right? On the 18th, which next Friday, those put options will cease to exist. So you know, if you nothing or a large institution, and you have, you know, several 100,000, put options on to hedge your portfolio, those are going to expire, which is going to force you to do something else, right, the market makers won’t have that position on anymore, they’re going to have to cover some shorts, or adjusting their position. And I think you’re right, in this case, where there’s a lot of uncertainty. And so what may happen is, you may, if you have puts that are expiring, you may now roll those out in time, right? You may roll them out three or four months and down some down a few strikes, right. So instead of having a putt that expires at the 4300 strike, right, that’s slightly in the money, now you may buy a 4000, put that expires another three months out. Now, it’s very common for large institutions to roll their hedges out like that, right. And when you roll your hedges out, you’re taking a very expensive put right, and you’re gonna buy a cheaper put, and the relative risk of that for a dealer is smaller. So they need less downside hedges. So in this case, what you’re kind of getting is it’s a buyback right on the fact that all these positions are expiring. So something has to be done. Again, you a lot of people are going to roll their exposure, what we say down and out, right, which is just, again, less risk for a market making perspective. So you could get a, you know, very violent short term rally that, you know, fade subsequently over the next one, you know, towards the end of 30 days. Right. And the other thing that is kind of interesting about the way that the market is positioned now is everybody is very short. Right. And one of the things that we’ve been talking about just one quick step back is that we think that a lot of the hedges weren’t placed in January, because of the questions around monetary policy, right? If you think about when the uncertainty started to creep in, you can see credit markets started to move kind of late, late last year, and in a lot of the selling of stocks happened in January. And people started, I think hedge back then in equities buying puts, you know, sort of six weeks, eight weeks ago. So when the Russian news came out, people were already pretty well hedged. And so I think that sort of kept something of a lid on volatility, you were talking about nickel and the move index, the bond VIX, so to speak is is gone, you know, close to march highs, oil metals, it seems like every asset class sort of non equities has really gone nuts. Whereas in this case, the market I believe at current levels is up about 3%. Since the day, the Russian invasion officially took place to the day that way tanks cross border, so stocks actually up from that event, strangely enough. Really. Yeah. And so, you know, I think that’s because the market is well hedged in monetary policy. You know, it’s all about what is the Fed going to do, there’s a, there’s a very sad humanitarian toll to this, and I don’t want to sound you know, not unaffected by that. But just strictly talking about the, you know, markets themselves, the market is up. And I think if the Fed says, you know, we’re not going to raise rates, or whatever it may be, I mean, who knows what the route is going to be, right. But that’s going to spark a short covering rally. And, and there’s this idea of reflexivity that George Soros made famous right in the Bank of England and all that, when, once the market starts to rally, it squeezes short, more, right? Volatility comes down, from our perspective, puts start to lose a lot of value. And as puts lose value market makers and dealers can buy back more, more of their short hedges. So you get kind of this explosive short rally something like today, you know, we had a 3% rally and on kind of nothing, the same thing yesterday, and then you know, that rally faded by the end of the day. So we’re just getting these spurts of volatility, but the Fed in the optics could really send a multi day sort of correction, higher, you know, kind of back in at 4500 areas is what we’re flagging.

Nathaniel E. Baker

Very interesting. Yeah. You mentioned today’s rally, and we are recording this on Wednesday, March 9, and I’m going to make this available after the close as soon as I can for premium subscribers, so they don’t have to wait. So this is all timely and with options, it is all very timely. But so we had this rally today, which appears to be holding on for now. crudest is falling quite a bit. And this is without any real at least from what I’ve seen any major news? Yeah, Russia, Ukraine. I mean, some taught some talks maybe with the Lansky saying some things but could this be the start of the short covering that with that, is that maybe what is behind this?

Brent Kochuba

Yeah. So if you if you follow the options, market, kind of lingo at all, there’s really two buzzwords that everyone brings up these days and it’s the idea of gamma. And the second one is called vana and Essentially what those are are metrics to measure options market makers, you know, hedging flow, how big the flow is right sort of quantified and then attempt to assign a direction oftentimes, and gamma. What happens is when the market starts to rally in these situations, the way that dealers have to hedge is to buy back shares of stock right as the market rises. But when volatility comes down, when vix comes down, for example, there’s more short covering to to be had from dealers right. And that’s what’s called Vanna Vanna specifically, is the change in delta for a change in implied volatility. All that is a fancy way of saying, when the VIX comes down, or implied volatility comes down, there’s more shorts to cover from a dealer’s perspective. So if you think about if you own a put right and and if you own a put this morning, you probably had a big smile on your face. And then by this afternoon, you know, you’re really feeling the pain, right? So the market maker on the other side of that is happy because that short putt, he’s short, that putt that’s losing a lot of value and able to buy back some shares. And that really exaggerates volatility quite a bit. So, you know, if you just watch the VIX come down, you will see the market drift up with that. And then oftentimes, the VIX will turn and start to spike and then short stocks will sell back off. That’s because as big spikes as implied volatility spikes, there’s dealers that start shorting again. So it’s this trampoline sort of effect.

Nathaniel E. Baker

Interesting. Is that why we see a bear markets have these rallies, the opening and the intraday before?

Brent Kochuba

Yeah, I mean, we believe that’s a huge component of it. And the other, you know, factor to think about again, another buzzword here is this idea of charm and charm is, is measuring the heat, the dealer hedging flow tied to time decay. So for those of you who know, look, if you want to put that expires next Friday, every single day, now, as we get really close to expiration, you’re put is losing value, right, because of that time decay, and that time decay accelerates certainly into next Friday. And so that, you know, that’s the second sort of flow. So what you basically get is this, if nothing dramatic enough, happens to push the market lower, right? And the market just sort of pauses will time decay starts to kick in, which invokes dealers to start buying back shorts, right? Because puts are losing value with time decay, volatility starts to come down, which means that again, dealers can buy some more back. This is the idea of kind of Vana. And then the third one is, is gamma. And I’m throwing a lot of buzzwords at you here. But basically, the idea is that as the market rises, time passes, it’s just a it’s just a buy back here, right Steelers buying back shorts, and that can lead to these extended what we call short covering rallies.

Nathaniel E. Baker

Cool. Yeah, we heard about gamma, obviously, during the whole GameStop. Yeah. saqa last year, Vanna. Is that a Greek letter?

Brent Kochuba

It is it is. Yeah, and charm and, you know, the vintage charm thing had just have come up a lot, you know, recently and they’re in really the point of these these terms is just to describe what happens around as implied volatility, or, again, you just think about the VIX moves and time passes what what the market makers have to do right, what dealers have to do interesting. And, you know, if you think about the options market, just in general, it’s had explosive growth, not just in the in single stocks, but across all ETFs. And well over half of the liquidity provided in options is through market makers, right? So if you think about Citadel, to sigma, some of these other big options names, basically, anytime that you go and buy an option, through your Interactive Brokers or E trade or whatever it is, there’s, there’s gonna be a market maker or a dealer on the other side of that trade. Right. And they, most of the time are having to hold that exposure on their book and hedging, you know, continuously. And so that’s all the work that we’re trying to do is measure and monitor this flow.

Nathaniel E. Baker

Now you’ve seen this movie before. This this Friday. Expiry next Friday’s expiry.

Brent Kochuba

Yeah

Nathaniel E. Baker

Talk to me about that. And yeah, how that played out.

Brent Kochuba

There’s a lot of evidence for for major bottoms are these in turn bottoms in the markets tied to these big expirations and the most famous of which are December of 2018. So if you remember, that was a really tough year right into the fourth quarter of December 2018. And there’s that famous phone call that Minuchin made to the banks on Christmas Eve day, right in the market put an intraday low in there. Well, that intraday low took place the Friday after options, expiration, December, year, end options expiration, which is a which is very big options expiration. So all these puts get wiped out. The hedging flows are adjusted on the Monday after and that was actually the low right. The same thing happened on the COVID. Crash of March of 2020. March 16, was the options expiration, the Monday after is the low in the market, and we rallied very sharply off of that. I have another you know, several dozen examples that I can list but one of the one of the other ones to sort of note which I think is really interesting is if you think back to last year, January of 2021, when Gamestop all that other stuff was happening. There were massive amounts of deep in the money options across tons of stocks. And if you if you think about the police Trade. Are you familiar with those how she likes to buy in the money puts? Right? Well, that that’s a famous, or that’s a very well known strategy. I think for wealthy individuals in particular, you buy leap options, right? You want some leverage and you want to. So you buy these long dated options. And 2020 in 2021, had very big years in the market, right, where there was huge rallies. And so these deep in the money calls, both last year and this January, all expired the third week of January, and boom, we have a ton of volatility after that expiration takes place. Now, last year, we had the Gamestop saga and the like. But I think a lot of that volatility, just in general was invoked by this big options expiration, if you think about the week that Robinhood almost went belly up and Melvin cap and all that that’s that’s the week right after options expiration. Same thing this past January, we had the interim low for January 18. Remember, the market slid very sharply into that the Monday after was the low? I believe, actually, that’s been the 2022 low so far. We bounced from that date, right, just that technical date. So those are some big examples as to why we think that, again, we’re doing our view for a bounce sort of into the FOMC. And into that kind of week after who’s to say from you, there’s so much going on, you know, 234 months down the road, I don’t have as much of a view. But my contrarian view here is that as options expiration can can can bring a rally here.

Nathaniel E. Baker

Very cool. I just wanted to ask you about the what you’re seeing, as far as we heard a lot about the you know, the Robin Hood crowd, the Gamestop crowd last year, and they’ve been eerily silent now for a while. Are they still active is the volume, it sounds like from what you’re saying the volumes are still pretty elevated? And is it still retail money chasing stuff? Or what are you saying?

Brent Kochuba

Yeah, so we have a couple of ways to view this. And in the best way is that the the exchanges provide some transactional data, and we can see what people are buying and selling. And so the call volume has come off sharply. And what’s kind of interesting into the the sort of end of the end of January there that retail investors actually picked up quite a bit in the put buying side. So they had sort of flipped the script a little bit there. But I have to believe sort of just anecdotally, that, you know, people had been rewarded, right, for consistently buying these out of the money calls. And for, you know, really, since the pandemic, it was just this feedback loop where you were just constantly rewarded for taking somewhat excessive levered risk, using options. And that had paid off really, really well up until all of a sudden it didn’t. And it’s blowing up spectacularly. And a lot of those names that were the biggest recipients of this options, flow of this levered options flow have been hurt the worst now, right? If you look at, you know, Shopify so far high, you know, AMC has come down quite a bit still holding up pretty well, all things considered. But all those you know, major names really have have completely unwound and I think that that has has hurt a lot of people. I mean, if you look at Robin Hood’s some of the information Robinhood puts out about their their individual investors, you know, and I kind of view them as the riskiest spectrum, right? Or at least the I don’t want to sound insulting by saying typically the least sophisticated, right, but they have tend to have smaller accounts, and they’ve really been hurt. And that’s one of the problems, I think, with options is that when your premium goes away, right, if you made the wrong call, you don’t own an asset once they expire, right? If you buy SoFi stock and you’re wrong, maybe I’ll hold it for 10 years and see what happens, right? But if your calls expire, worthless that that money’s gone, right. And that’s one of the tricky parts of the options.

Nathaniel E. Baker

Indeed, indeed, and also why it’s so hard to make a podcast around options, because you have the time at a time, you know, the clock is ticking. Right. All right, Brent, Coach shuba I want to take a quick break and come back and ask you some more questions. So everyone stay with us if you’re a premium subscriber, don’t go anywhere. You’re not going to get the break. If you want to become a premium subscriber, go to the website contrarian pod.substack.com. And sign up. Our Welcome back. Everybody here with Brent good. shuba of spot gamma calling in from Eastern Connecticut right down the road from me. Right closer. Yeah, we’re very close. Yeah, yeah. So tell me this is the segment of the show where we ask our guests to tell us a little bit more about themselves personally, how they got to this stage of their career and such. So take us back and fill us in

Brent Kochuba

So I graduated degree from University of Connecticut and I went to work at Bank of America basically on the equity on equity sales desk, I was in what’s called program trading, which is basket trading. From there, I got into electronic trading. We started building up electronic options router, so I got really into market structure and that kind of thing. I then worked at Credit Suisse for for a while. And then I worked for as a broker for an options market maker called Wolverine. So that was about 15 years of sell side experience. And then I went went to work for family office, a buy side on the buy side, studying the options market SPX options market and trying to tailor some strategies related to trading calls and puts in the s&p. So that is that experience is what really led me to build these models, right, I built these models that are now the kind of basis for spot gamma. And so for spot gamma, what we do is we every single day, we analyze the options market, how options has shifted around, primarily in the SPX, and the NASDAQ. But we also offer data on over 3000, individual US stocks. And our whole thesis here is that there are times when you can identify where the options hedging flow is large enough to move the underlying security. So we don’t think that the options move the market moves every stock all day long. But our goal is to identify when and where that options flow may be dictating, we’re having a major impact on the way that the underlying equities indices are moving.

Nathaniel E. Baker

Hmm. All right. Well, that kind of begs the question what your if you’re picking up anything today as we record this, and maybe it indexes or an individual names?

Brent Kochuba

Yes. So in our in our daily source subscriber notes, we flagged two big areas of open interest. And around this open interest, we believe this is where hedging flows are likely to come into the market. And so those two big areas of open interest today is you know, Wednesday the knife are 4000, there’s at this 4000, strike me SP 500, there’s a ton of open interest. And at 4300. In the s&p, there’s a lot of open interest. And so at the time of our conversation right now, the s&p is trading at 4278. Yesterday rejected off of that level, and sold off pretty hard. And now we’re kind of pushing up against that level as well. And and what’s going to happen now, before we had mentioned the fact that there’s just a lot of put open interest, right, there’s a lot of people holding those hedges, put hedges in every day, as we march towards the FOMC, those puts are going to start losing value, unless something really kind of catastrophic happens to make the market drop here, those ports are going to start losing value as we head into FOMC. And then the FOMC is I think, going to be kind of a risk on trigger, right? Because we’re going to get some clarity, I think around monetary policy. And I have a hard time believing that it’s going to be a hawkish sort of surprise, right. And so just the fact that there’s clarity there could could bring bring a little more risk off, right, people may be a little more relaxed, and that is going to release some more of this hedging float, bullish hedging flow in the market. So so that’s really what we’re watching right now, to the downside, if you look at that positioning, you know, our sort of worst case scenario into next week is 4100, in the SPX. And we write sort of extensively about that. But we think that that essentially is a lower bound basically, as we’re so well hedge that we’re gonna get down to that level, and just there’s not gonna be any more appetite for downside, right, unless there’s just, again, some real catastrophic event taking place. But But our view essentially is that equities are well heads right now. And those hedges are going to start to burn, right, they’re going to start to burn off as we march towards next Wednesday. And next Friday.

Nathaniel E. Baker

What about in the commodities market? Right? Do you pay much attention to that?

Brent Kochuba

We don’t track the commodities market all that much. The you know, there is a lot of obviously options trading, there’s a lot of and we think that the issue there is it is a different animal right from from a lot of equities. If you look at you know, there’s a lot of producers are hedging for reasons outside of speculation. There are a lot of different margin issues being invoked right now. So that is a that is certainly a trickier market to monitor right now. But if you just think about the idea of convexity in general, anytime you’re getting these convex moves, right, where you have these explosive jumps, we think a lot of that is driven by options activity, because anytime that there’s a call buyer be in an oil or you know, nickel or you know, GameStop Somebody sold that call and is on the other side of that trade, right. And so when prices start to move up, you get explosive hedging, right, short covering, basically that can allow these assets to go convex, if that makes sense. So, so you can sort of you can run a similar analysis and commodities, I believe that you can show equities in terms of figuring out where positions are in convex moves around that.

Nathaniel E. Baker

Okay. What about individual names? Anything interesting there that you can report?

Brent Kochuba

Yeah, we’re the last couple days, you know, really today and yesterday, there was a little bit of a change in flow, and that we saw a lot more short dated calls rushed into a lot of single stocks. So if you think about Nvidia, a lot of the crypto names today were sort of popular in terms of Coinbase riot, those kinds of names, I think offer the some of the Biden had some comments on crypto this morning. And financials were catching a little bit more of a bid. And so the flow is starting to change here a little bit. I think, you know, over the last several weeks, it’s been a lot of call selling in a lot of those single stock names and a lot of just unwind of positions, longer data positions. And so what you’re seeing now, I think is some people that are really attention. They’re they’re tempted to try to catch a dip Right. And using options in this case makes a little bit sense because you have some defined risk. Obviously, if you’re buying a call, you know what your downside is right. And in the, the short cover rally that could come can be really quite explosive mean, several single stocks are up five to 10% today, and they’re really trying to catch this bottom. So the complexion of the flow, so to speak, has changed a little bit over the last day that people do seem to bond a little more calls Apple was a big call buying day yesterday. So it appears that people are trying to maybe catch a bottom here. Well, Apple had that event yesterday, it might have had something to do with it. Yeah. And yeah, that’s a that’s a great point. I mean, you know, Amazon is another one that’s we’ve seen just heavy called call selling, and putt buying, both of those are what we call negative Delta trades, right. And that means that dealers who are, you know, going to end up short, excuse me long Amazon calls and short puts have to sell stock, right to sell Amazon stock to stay hedged. And so, you know, as that flow compounds, it really can pressure the stocks down, you know, quite a bit as a result. So as soon as you get that flow switching, where people are buying calls and selling puts, you can get, you know, these really large short cover rallies, basically, the issue is short covering, and a lot of that is what is taking place now, right, we see and we measure, we have a new tool we just launched called Hero. And that measures, it looks at all the trades that are taking place real time every day. And it measures what the hedging impact the dealer hedging impact is. And so we could see an a day like today in a day like yesterday, it is it is the sale of puts that is linked to the market going higher. And, and if you think about what deals are then doing is if people are selling puts, right, they’re closing their put positions, dealers are therefore buying their puts back, remember that they have a short hedge on so they’re, they’re then buying their short hedge back. So it’s a short cover rally right from from dealer’s perspective, in the issue, as you know, is what short covering is that those rallies are inherently unstable, the biggest rallies that take place during bear markets, right. And that’s because it’s violent, short covering, you have to cover your short rapidly, you have to chase right to cover. And so the resulting the resulting effect is that when the when you’re done covering your short, there’s no, there’s no support underneath, right, and the market can just drop back down. And so I think that’s what leads to a lot of these bounces where you get this flow where there’s this, you know, rapid short cover rally, and all sudden, when those shorts are done, you know, the momentum fades and things mean revert,

Nathaniel E. Baker

how important is liquidity? Because it sounds like there is still a lot of liquidity, you know, be it from retail, or institutions or wherever?

Brent Kochuba

We watch that very closely in the in the E Mini futures is kind of our benchmark for watching. And what’s fascinating about that, if you go to the CME, they have something called a liquidity tool. And you can look and see what the top of book liquidity is for a variety of different products. But again, we look at the ES, which is the E Mini futures is kind of the benchmark, you know, futures for equities. And you could see that the liquidity has really dried up, going back to no october november period. So when it became clear that the Fed was going to reduce support, and I don’t know exactly how these are linked, but it’s just fascinating that that’s when so there was a shift in monetary policy, the liquidity really dried up. And I think that plays into a lot of this volatility, where, particularly in the options market, when there’s a lot of volatility, market makers widen their spreads, right? In futures, traders and equities, you widen your spreads, because you need to get paid more to take that risk, right, I’m gonna make you pay an extra five or 10 cents, you got to you know, to buy your put option when things are going crazy. So that’s great for market makers in terms of they’re capturing more spread, they’re making more money there. But But technically that, that removes a little bit of liquidity, right? You have to trade more, you have to pay more spread to get the to get your fill, so to speak. And I think that can really, you know, drive obviously, volatility.

Nathaniel E. Baker

Cool. Now, what is your role? Are you spot gamma? Is your firm you started it?

Brent Kochuba

Yeah, I’m the founder of spot gamma. I started back in January of 2020. As well timed, yeah, yeah. I mean, I, you know, I had built these options models for a family office and, and the pandemic hit. And, you know, a lot of people there’s a lot of concerns and trying to start a hedge fund in and around that time, you know, it was it was a risk that, you know, unfortunately, the investors weren’t willing to take. And so, I was sitting there with a bunch of these models that that I had a lot of belief in. And so I started offering them publicly, and people started signing up to see my daily analysis and to review these models, and it’s really grown since then. And, you know, it’s been a fascinating time to be in the options market, you know, with the Gamestop stuff in the march of the march COVID crash, you know, Tesla has been a stock that we watch a lot and that the options market has a big impact on and, and so it’s really been fascinating, a fascinating few years there

Nathaniel E. Baker

Yeah, no question. Do you have employees or is it just you?

Brent Kochuba

We have about 10 employees, a bunch of developers, we have a couple people trying to help us on content. I have a business partner named Matt Fox, and he handles a lot of the business end of things so I can concentrate on creating new tools and content and analyzing the markets.

Nathaniel E. Baker

Very cool. Very cool. They’re on everyone’s remote now.

Brent Kochuba

Yeah, that’s kind of the way that it just is, you know, it’s a, it’s a, it’s a unique time to be alive. But it actually works out pretty well for everybody, you know, or you can get on Zoom these days and go,

Nathaniel E. Baker

No, I know. I know that game very well. Yeah. Yeah. Cool. All right. Brent, could you bet in closing, tell us how we can find out more about you more about what you offer? Yeah. Are you on social media at all?

Brent Kochuba

I am. Yes. So I have a pretty good presence on Twitter, you can find your asbach Gamma, we have a YouTube channel as well, where we dive into a lot of topics we discussed. And then spot gamma.com is our website. And we have daily, we have subscriptions to get our daily notes. If you’re interested in that. It’s a it’s a free trial there. So you can come and see what we have to say about the markets, particularly next week should be a really interesting week.

Nathaniel E. Baker

Spot gamma on Twitter has 53,000 followers. And now you have 53,001 I’m joking, it’s not an exact I because I was not following you. Yep. But now I am very cool. And you put out a bunch of stuff. This is awesome. Okay, this whole options world is something that is not very well known to me. Great. So I’ll put all that stuff in the show notes. That’s great. Thank you. Awesome. Well, thank you Brent for taking the time to come on the contrarian investor podcast. Thank you all for listening. And we look forward to speaking to you again next time.