Brent Kochuba Says It Is Hard to Be a Bear With Crude Back Under 100

0:00 There's a lot going on, Jamal. Uh these swings are crazy and uh and yet here we are basically unchanged to where we were pre FOMC. Um and inside of that, you know, uh there's kind of fireworks everywhere. And so the the S&P currently, you know, flat, which is which is kind of funny. Uh but I think we're going to start seeing some shifts now as people digest not not just the rate situation, but funny enough, as we hike rates, suddenly oil starts collapsing. Um and and that takes some of that rate pressure off. And so I'm watching uh tech start to possibly get rebid here a little bit. Uh seeing SMH pretty strong and maybe seeing people start to think about the midterm rally is suddenly what it looks like. Quite a bit different from yesterday at about 3 p.m. >> Yeah. Right. Really is. Oil definitely uh bears mentioning here today um

0:47 because obviously the release in oil is is is uh sort of leading leading equities not to be as stressed. Not to mention the 10ear being down. But how much does like uh the VIX expiration play into this? How much does this options expiration play in this? We got a big one coming up uh tomorrow. >> That's a very good question. So, we had VIX expiration yesterday morning was at 9:30. We lost about 40% of total VIX positions. And basically what that did is it just declined the magnitude of the short call position for the dealer community to the upside. So, that relieves some of the volatility pressure. I think in this case, because we had the FOMC on the same day as uh as the VIX expiration, there's probably some extra hedges and some stuff on. So I think the initial impact of of a volatility release um wasn't necessarily wasn't necessarily there. The the kind

1:34 of curious thing about the market as it stands is that realized ball right now is roughly a nine. I think we talked about this several times over our recent discussions and and Mike um that realized ball is at a nine and the VIX is up at 17, right? Well, that spread is usually about four points. So if you haven't realized well at nine, you add four, you get 13. That's roughly where let's call that fair value for the VIX, right? It's just a very dirty back of the envelope calculation. So when the VIX is up at 178, what is that telling you? That's telling you there's a fair amount of volatility premium in the market based on how much realized while we're getting. So when you remove the VIX expiration generally or opex even that this kind of window that we talk about, I know that Jem talks a lot about that as well. you know, window of weakness. In this case, what you had is

2:20 a pretty thick volatility premium because of the uh because of the FOMC, because of the oil situation, and that can release some of the ball to start to come in um as you clear out some of these seemingly rich vault uh uh VIX positions and volatility positions. Now, if you look at OPEX itself, it's pretty evenly weighted between puts and calls. So, a lot of times this thing feels a little easier to to to call if, let's say, the market's just crashing and the VIX is at like 30 and we hit OPEX. It's like, okay, this could be a great spot for a bounce. But in this case, we're trying trying to digest and we're really we've really been stuck in this 7600 area. With OPEX, I think we clear out a lot of those positions. Um, it's going to be not the biggest options expiration ever, but probably one of the top five,

3:05 I would say. Uh I measure about uh $2.5 trillion worth of value set to expire. And so what I think what I'm anticipating happening is that the S&P is going to start to unpin from the 7600 level. And as you start to watch tech break out and you start to watch the semis move higher and Tesla Mcguire and all these names, right? I think the S&P can start to start move up and slide up as well. Kind of unpinning from this OPEX uh 7600 level at OPEX. Just another point on that dram kind of yapping away here. I I've I've looked a lot at the negative beta in the S&P 500. So, there's these charts that are floating around that show that this is the most stocks in the S&P 500 uh arguably ever that have a negative beta to the S&P, which tells us that when the S&P goes up, we have around 120 components of the

3:51 S&P go down, which is the highest level ever. Usually, you would expect, hey, Jamal, if I told you the S&P rallied 2% today, you would expect almost all the components in the S&P 500 to be up at the same time, right? Um, but that's not what's happening. What's happening is energy names are inversely correlated to the S&P right now. So obviously oil goes up, energy name goes up, S&P goes down, right? Rate sensitive names uh are inversely correlated the S&P right now. So you think about insurance brokers, real estate, you know, different things like that. Some of the gas sensitive names like uh consumer cyclicals, you can see uh you know just stuff that requires retail to be out shopping around the higher oil goes that kind of is a damper on that stuff. Um, and then the positive names, the names that are really highly correlated, which I just heard you mentioning, is the tech concentration, right? So, the top 10

4:39 names the S&P 500 are by and large tech names. And that makes the waiting of the S&P a tech index. Why am I talking about this? Because the S&P, if we start to rally because oil is coming down, there's still a drag on the S&P because all these energy names, right, are going to start coming coming off, right? They're going to trade lower, which is a drag on that S&P. uh and if the rate stays sticky high, you know, then those rate sensitive names necessarily can't rally even if oil starts to drop. So, the S&P has a a diversification problem right now. And I'm bringing this up because I think if we are indeed going to start getting this midterm breakout and as balls come in and as tech starts that act good uh then I really want to be owning tech calls to play a unpinning of the markets here into opex and and

5:24 and a midterm rally. Um and I think that's kind of what OPEX is going to represent here is like okay we've been stuck in a range. We've been sort of consolidating. OPEX is going to clear out a lot of the positions that have built up around at the money levels. And as that rolls off and clears out, I think people, as long as oil stays under 100, I think people are really going to start watching that right tail and and we could see a pretty good squeeze here. And to to optimize that, I want to be in tech specifically, uh, not the S&P 500 because of that diversification. >> Brent, Brent coming in with the heat. I mean, you've been thinking about this all night. I can tell, man. Like, first of all, we actually do bring you in here to come and yap, so don't worry about it. It's all right. Um and and and that that was a great job explaining that that uh volatility risk premium effect, right? Like that difference between historical and and and uh implied V

6:11 which is going on right now. And I'm looking at these different strikes and and not not to be surprised. I mean uh when I look at 7,600, you got 60,000 on both sides. That's obviously a big strike. Same thing at 7650. 38,000 here on on the calls, 37,000 on the puts. Um so we'll see if we end up 7,700. Again, not a surprise. We'll see if we end up winding up around one of those strikes. One of the big things this week, uh, you talk about tech was the whole fears of of AI. Did you see a lot of flows in and in or out of those areas and and, uh, what were your thoughts surrounding the the the idea that AI is going to end the world? >> It it's been real whipsaw in that sector. Uh, we saw call SKs getting bid. So, if you remember about two weeks ago when I first started coming on with you

6:57 all, uh, we started to see that call skew lift a little bit, right? and it was starting to look like things were going to break out. And then when oil really started to pick up over 100 and the AI dumerism, you know, kind of came into play that that call skew started to to move and we started to see the put skew lift and the indexes is people started to get worried about the macro rate situation and that and you know you're going to park your feelings and thoughts about AI. The higher oil goes, the less you care about AI, right? So if oil is $200, we're not going to be sitting around here talking about data centers. We're going to be talking about something else. So, as oil comes down and that focus can kind of retrench, um, we're starting to see a bid back into the call side here. I mean, it's early, but I think as long as we hold 7,600, S&P 500 and oil stays are, you know,

7:42 under 100, I think we're just kind of right at that level right now. Um, then you're starting to see people bid into calls right now. The implied V is very low in this call sector. So, to give you an example, you look at Nvidia right now, it has an IV rank of eight. So that means the implied va right now the one month at the money implied va in Nvidia is lower than it's been at any point other than 90 plus percent of the the last year. So you look at a name like that, right? There's a little bit of a of a call skew there. There's no one really is interested in the put side, but does that name start to get bid and break out, right? And that v start to pick up as we move to the upside. I don't think we're going to have like a repeat of March or or April where, you know, like we had this unbelievable stock up ball up move, but everybody in

8:27 their mother and brother and sister are looking for a midterm rally because they assume that Trump is going to want to kind of juice that. And so, you know, just the belief that he could do something to juice that is enough for us to all start getting into the chase, right? And so, I think we're all just looking for that permission to start the chase. And to me, these tech vaults are so cheap at the moment um that you know it warrants like very nice fixed risk return to the upside looking at you know November type options on that rally or playing a tech rally. Here's the other thing about the nice thing about buying November options is that with the elections at the start of November around the 3, then the V of those calls, right, or the V of November options is going to be a little stickier because of

9:13 that event. And so you have the benefit here of it it kind of like slows or or maybe, you know, holds up or retards that decay a little bit uh because of those of those events going forward. So, um, so to me, you know, you wrap this all up and say people are already leaning into the call side in these tech names, but the V is very cheap and that V could start to increase and get a bit richer if we indeed start to break out here. And it's hard to not look at the overnight price action. Yes, this morning we're consolidating a little bit, but you know, uh it's hard to it's hard to be a bear right now, I would say, uh with the response in oil under under 100 or right near that $100 level and then and then equities looking like they're springy at the moment.