WEBVTT - The Options Explosion 0:00:00.440 --> 0:00:03.840 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:12.640 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:12.720 --> 0:00:16.239 What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah 0:00:16.280 --> 0:00:19.520 pons a reporter on the Cross Asset team, and Mike Reagan, 0:00:19.680 --> 0:00:22.319 a senior editor at Bloomberg. This week on the show. 0:00:22.480 --> 0:00:25.000 Over the last couple of weeks, a real spotline has 0:00:25.040 --> 0:00:28.840 shown on the options market, but questions still remain. How 0:00:28.960 --> 0:00:33.560 much can options actually wag the stock market dog? Who's 0:00:33.600 --> 0:00:36.720 to blame retail traders or soft bank who's now been 0:00:36.760 --> 0:00:39.479 deemed the Nazac whale? And of course what does this 0:00:39.560 --> 0:00:42.600 mean for investor as well? Not to build any pressure 0:00:42.640 --> 0:00:45.559 on our guest or anything, but he has all the answers. 0:00:46.080 --> 0:00:48.360 I was gonna say, Sarah, all all the answers. You're 0:00:48.360 --> 0:00:50.760 really uh, you're really putting this guy on the spot here. 0:00:51.040 --> 0:00:53.040 Not to hype it up too much, but I really, 0:00:53.080 --> 0:00:55.400 I really believe he does all the answers. I'm gonna 0:00:55.400 --> 0:00:57.720 ask him where where do babies come from? Let's see 0:00:58.080 --> 0:01:01.600 start with the most pressing of them. But as always, 0:01:01.600 --> 0:01:04.800 will close out the episode with our tradition the craziest 0:01:04.840 --> 0:01:07.520 thing I saw in markets this week. And please if 0:01:07.520 --> 0:01:10.280 you saw something crazy, give us a call on the 0:01:10.280 --> 0:01:14.360 Bloomberg Podcast hotline at six four or six three to 0:01:14.640 --> 0:01:17.759 four three four nine, oh, and leave us a voicemail. 0:01:17.840 --> 0:01:19.720 Maybe we'll play it on the show. And of course 0:01:19.760 --> 0:01:23.640 you can always tweet us at podcasts Now. Sarah, before 0:01:23.840 --> 0:01:26.240 I actually introduced this guest, you have to indulge me 0:01:26.319 --> 0:01:29.080 with a little bit of an old man nostalgia story 0:01:29.120 --> 0:01:33.280 here always always you like it when I wind up 0:01:33.280 --> 0:01:35.840 with the old the Old Guys series. Yeah. So, as 0:01:35.840 --> 0:01:39.520 you probably know, I grew up outside of Philadelphia, suburban Philadelphia, 0:01:39.560 --> 0:01:43.440 but my parents are from a little town called Wilkes Barre, Pennsylvania, 0:01:43.760 --> 0:01:46.080 which is further north in Pennsylvania, up in the mountains. 0:01:46.160 --> 0:01:49.200 It's a river town. When we would go back to 0:01:49.360 --> 0:01:53.440 visit my grandmother, my dad would always kind of revert 0:01:53.520 --> 0:01:55.600 back to a twelve year old boy, I think, and 0:01:55.640 --> 0:01:58.680 he'd take me and we'd go on little adventures around town. 0:01:59.560 --> 0:02:01.080 One of the things we did one time was we 0:02:01.160 --> 0:02:03.960 used to go throw rocks in the river um and 0:02:04.040 --> 0:02:06.639 one time we were up on a cliff throwing rocks 0:02:06.680 --> 0:02:08.959 out in the river right and all of a sudden, 0:02:08.960 --> 0:02:11.680 there must have been guys down on the bank fishing 0:02:11.720 --> 0:02:13.919 that we couldn't see. So they started winging the rocks 0:02:13.919 --> 0:02:16.880 back at us, and we had to high tail it 0:02:16.919 --> 0:02:19.079 back to my grandmother's house. We were all sweaty, and 0:02:19.720 --> 0:02:21.840 you know, she was like, what the what is what happened? 0:02:21.840 --> 0:02:24.200 And but I was like, nothing, nothing not, nothing's here? 0:02:24.880 --> 0:02:27.440 How this is relevant? Okay, you're ready? Yeah, I'm waiting 0:02:27.440 --> 0:02:30.200 for it. Could you name I bet you can't, but 0:02:30.280 --> 0:02:33.520 can you name that river I was throwing rocks into me? 0:02:34.000 --> 0:02:39.320 Named that river in Pennsylvania? Named that river? Uh, Susquehanna. 0:02:41.720 --> 0:02:44.400 Say it again? Try say to it again. Am I right? 0:02:46.040 --> 0:02:50.320 If we'll allow mispronunciations, you're you're correct, Susquehanna. Susquehanna. That 0:02:50.320 --> 0:02:52.919 was pretty good. Right, that's better. And that's Ralevant because 0:02:53.360 --> 0:02:56.200 obviously one of the biggest, most important firms in the 0:02:56.240 --> 0:03:01.040 options market is Susquehanna International Group, and we are lucky 0:03:01.240 --> 0:03:04.960 to have their co head of derivative Strategy on the 0:03:04.960 --> 0:03:07.720 show this week. His name is Chris Murphy. Chris, welcome 0:03:07.720 --> 0:03:10.960 to the show. It's great to be here. Thank you. Um. 0:03:11.000 --> 0:03:13.400 I'm also from the suburbs of Philadelphia. So I might 0:03:13.440 --> 0:03:15.600 not have I might have to not have all the answers, 0:03:15.600 --> 0:03:17.600 but I definitely have answers. So let's let's do this. 0:03:18.840 --> 0:03:20.320 You might have the answers to what happened to the 0:03:20.360 --> 0:03:23.160 Eagles last week? I don't know. I was watching the 0:03:23.240 --> 0:03:25.760 kids soccer. Luckily I missed it. Yeah you didn't, You 0:03:25.760 --> 0:03:28.840 didn't miss You didn't miss that. But Mike claim to fame. 0:03:28.880 --> 0:03:30.799 When I first got to Bloomberg a million years ago, 0:03:30.840 --> 0:03:35.480 was the the options guy reporter realized I could I 0:03:35.520 --> 0:03:38.600 could spell Susquehanna, And every time he was writing a story, 0:03:38.800 --> 0:03:40.800 how do you spell Susquehanna again? And I'd tell him 0:03:40.800 --> 0:03:42.960 and then he'd say, how do you spell balakin Wid 0:03:43.040 --> 0:03:46.360 which is where Susquehanna is located? And I think everyone 0:03:46.400 --> 0:03:48.320 else on the team thought I knew everything. It's like 0:03:48.360 --> 0:03:50.839 this guy knows everything. Yeah, he quickly became the most 0:03:50.840 --> 0:03:54.440 resourceful guy at Bloomberg. That's right, That's right. So so Chris, 0:03:54.520 --> 0:03:56.440 first question is how long did it take you to 0:03:56.520 --> 0:04:00.560 learn how to spell Susquehanna without looking twice? Well, I've 0:04:00.560 --> 0:04:03.440 been here sixteen years, so I was I figured out 0:04:03.440 --> 0:04:07.000 both of those before my headway point. So that's a 0:04:07.000 --> 0:04:09.640 pretty good that's about a good learning curve, I would say, 0:04:09.640 --> 0:04:11.320 I would say, they didn't make you try to spell 0:04:11.360 --> 0:04:14.640 it in your start off interview. You know, they did not. 0:04:14.880 --> 0:04:17.520 They did not. Luckily, Luckily I might not be here. 0:04:17.560 --> 0:04:20.520 Who knows what I do? I can spell all the 0:04:20.560 --> 0:04:24.040 tough filly area many on contrack and quiz me anytime. 0:04:24.080 --> 0:04:26.719 But but anyway, Chris, let's get to the heart of 0:04:26.720 --> 0:04:30.960 the matter here. As Sarah pointed out in the introductions, 0:04:31.400 --> 0:04:34.839 everybody is talking about the options market again, trying to 0:04:35.760 --> 0:04:39.680 suss out what role options trading may or may not 0:04:39.760 --> 0:04:43.880 have played in this ferocious rally in the equity market 0:04:43.960 --> 0:04:46.120 and now a little bit of a correction since the 0:04:46.120 --> 0:04:48.760 beginning of September. You know, from your seat, what was 0:04:48.839 --> 0:04:52.120 it look like watching the options market this year? I'm 0:04:52.160 --> 0:04:55.840 guessing it was a very unusual environment. Was this almost 0:04:55.920 --> 0:04:58.719 like nothing you've ever seen before? This much sort of 0:04:59.000 --> 0:05:03.080 retail interest and now we're learning about even bigger institutional 0:05:03.120 --> 0:05:05.800 interest from the likes of Soft Bank. I mean, what 0:05:05.920 --> 0:05:08.839 was it like watching all this flow go by? Yeah? 0:05:08.839 --> 0:05:10.520 I mean, I think you hit the nail on the 0:05:10.520 --> 0:05:14.359 head the most notable change that we've seen this year 0:05:14.560 --> 0:05:19.480 is just the explosion in the retail trading flow concentrated 0:05:19.520 --> 0:05:23.480 in the front two weeks. We did some analysis recently 0:05:23.560 --> 0:05:27.520 where we looked at what percentage of overall option trading 0:05:27.600 --> 0:05:31.480 volume was in the front two weeks before coronavirus and 0:05:31.600 --> 0:05:35.360 before all the brokerage houses we're starting to give out 0:05:36.279 --> 0:05:41.000 no fee option trading. It was you know around UH. 0:05:41.120 --> 0:05:45.000 Now it's closer to that's a huge difference, just UH 0:05:45.120 --> 0:05:48.920 concentrated in the front two weeks. That trading is unique, 0:05:49.040 --> 0:05:50.880 and I think you know, when you're reading about it 0:05:50.920 --> 0:05:53.760 and looking at it, you see these giant volume numbers. 0:05:54.240 --> 0:05:56.359 But what not a lot of people are are pointing 0:05:56.360 --> 0:06:00.240 out is that the volume numbers at the end of 0:06:00.279 --> 0:06:02.640 the day, when you compare them to the change in 0:06:02.720 --> 0:06:06.039 open interest the next day, the change in open interest 0:06:06.360 --> 0:06:08.800 is a fraction. For a lot of these what we 0:06:08.839 --> 0:06:11.680 call message board trading stocks that we've been tracking here 0:06:12.440 --> 0:06:14.840 is a fraction of the volume number. So what that 0:06:14.880 --> 0:06:18.080 means is over the course of the day, these options 0:06:18.080 --> 0:06:20.760 were as we are assuming um for your number of 0:06:20.760 --> 0:06:23.600 ways that we track it are being bought early on, 0:06:23.680 --> 0:06:25.400 but then a lot of them are closed by the 0:06:25.480 --> 0:06:29.000 end of the day UM, So their long term impact, 0:06:29.320 --> 0:06:30.960 you know, when they're open and closed the same day, 0:06:31.160 --> 0:06:33.839 is not huge. But over time that open interest does 0:06:33.880 --> 0:06:36.960 build up UM and by the time we get to expiration, 0:06:37.600 --> 0:06:40.120 that's when you see a lot of a larger moves. 0:06:40.560 --> 0:06:43.040 For example, we were looking at Apple and we looked 0:06:43.040 --> 0:06:46.279 at the inter day trading range for Monday through Thursday, 0:06:46.880 --> 0:06:49.440 UM pretty consistent across the board, and back in two 0:06:49.440 --> 0:06:52.960 thousand nineteen the Friday was moving at a similar range. 0:06:53.480 --> 0:06:58.280 But recently the moves on Fridays have been around wider UM, 0:06:58.320 --> 0:07:00.640 and we think that's, you know, really due to a 0:07:00.680 --> 0:07:02.960 build up in open interests from a lot of this 0:07:03.279 --> 0:07:07.080 retail trading, so this message board trading. You mentioned that 0:07:07.120 --> 0:07:08.640 if if a lot of this is being open and 0:07:08.680 --> 0:07:10.520 closed in the same day, you said, the long term 0:07:10.560 --> 0:07:13.840 impact isn't that large. However, I think it's come to 0:07:13.920 --> 0:07:17.880 been well understood that options did play a role in 0:07:17.920 --> 0:07:20.080 this run up, this massive run up that we had 0:07:20.120 --> 0:07:22.960 in August, particularly in some of these stocks like Apple, 0:07:23.520 --> 0:07:26.560 like Tesla. Can you walk us through the dynamics of that, 0:07:26.600 --> 0:07:29.040 though I know a lot of Greek letters get thrown 0:07:29.080 --> 0:07:31.840 out and about. But how is that actually possible that 0:07:31.880 --> 0:07:35.960 you can almost have this army of small day traders 0:07:36.200 --> 0:07:40.000 trading options in and out very quickly UM in small lots, 0:07:40.080 --> 0:07:46.080 and that actually can somehow move prices, especially of large companies. 0:07:47.200 --> 0:07:48.840 You know, even though a lot of it is open 0:07:48.840 --> 0:07:51.760 and closed the same day, over time that open interest 0:07:51.800 --> 0:07:54.680 builds up. So let's just stick with Apple for example, 0:07:54.920 --> 0:07:59.520 UM and September expiration is on Friday, UH and last 0:07:59.640 --> 0:08:01.480 I check, Apple was around a hundred and twelve and 0:08:01.480 --> 0:08:03.320 a half bucks somewhere around there, maybe a little bit 0:08:03.320 --> 0:08:07.120 lower UM and the strike with the most open interest 0:08:07.240 --> 0:08:09.000 because of this, a lot of it due to the 0:08:09.040 --> 0:08:11.640 retail trading adding up over the course of weeks and 0:08:11.680 --> 0:08:15.440 weeks and weeks, UM had around seventy five thousand open 0:08:15.520 --> 0:08:19.560 interest call contracts. So you know, let's say you're a 0:08:19.600 --> 0:08:24.240 market maker and Apple is add ten dollars, so it's 0:08:24.320 --> 0:08:27.280 below the strike. You have to buy some stock to 0:08:27.400 --> 0:08:30.520 hedge your short call position, but not a lot, let's 0:08:30.520 --> 0:08:35.800 say worth of how much UM culture short The next morning, 0:08:35.800 --> 0:08:37.640 if Apples up at one fift, you have to go 0:08:37.679 --> 0:08:39.680 back out there and buy some more stock. Now, there's 0:08:39.720 --> 0:08:42.600 a lot of forces at play. But because these option 0:08:42.640 --> 0:08:45.880 positions are getting so big, and because the market makers 0:08:45.920 --> 0:08:48.320 being forced to go out and buy stock, that does 0:08:48.400 --> 0:08:51.320 have an impact on the stock um and would move 0:08:51.360 --> 0:08:53.720 the stock higher if they are out there buying another 0:08:53.800 --> 0:08:56.160 day later stocks a hundred and twenty, the market maker 0:08:56.160 --> 0:08:58.040 has to go out there and buy more. And this 0:08:58.080 --> 0:09:01.560 works in both directions. Apple at twenty, these calls are 0:09:01.640 --> 0:09:04.080 way in the money. All the market makers are hedged 0:09:04.120 --> 0:09:07.040 pretty much the equivalent amount of stock to the calls 0:09:07.080 --> 0:09:09.440 that they're short. And then we start selling off like 0:09:09.520 --> 0:09:12.400 we did in in September, and all of a sudden, 0:09:12.400 --> 0:09:14.640 those calls are out of the money. Well, they don't 0:09:14.640 --> 0:09:16.920 need that long stock as a hedge anymore, so they 0:09:16.920 --> 0:09:18.559 need to sell it as well. They're just looking to 0:09:18.640 --> 0:09:23.240 stay flat. So this is gonna exacerbate moves in either direction. Um. 0:09:23.280 --> 0:09:25.560 You know, as we saw this week, you know, the 0:09:25.640 --> 0:09:28.160 FED things like that, that's still you know, the major 0:09:28.200 --> 0:09:33.160 catalyst that is moving markets. But the increased trading and 0:09:33.200 --> 0:09:35.240 open interest in the options is just going to work 0:09:35.280 --> 0:09:38.840 to exacerbate moves in either direction. Um, if we are 0:09:38.880 --> 0:09:40.880 working under the assumption, which I think is a good one, 0:09:40.920 --> 0:09:44.560 that that retail is um, mostly net long a lot 0:09:44.559 --> 0:09:48.080 of these options. Chris, did you notice any sort of 0:09:48.280 --> 0:09:51.400 change in the complexion of the option markets right there 0:09:51.440 --> 0:09:54.040 at the beginning of September when the market sort of 0:09:54.040 --> 0:09:57.000 peaked and rolled over? You know, the jokes, I've got 0:09:57.040 --> 0:09:58.880 a piece in Business Week to sort of plug my 0:09:58.880 --> 0:10:01.319 own book here, you know, people joking about, well, the 0:10:01.640 --> 0:10:03.840 Robin Hood traders had to go back to high school, 0:10:03.960 --> 0:10:06.880 and you know, the the NFL Week one lines came 0:10:06.920 --> 0:10:09.400 out and there was more interesting stuff to to bet on. 0:10:09.559 --> 0:10:12.760 But I wonder there is there a little bit of 0:10:12.800 --> 0:10:15.760 element of truth to that type of sort of humorous 0:10:16.440 --> 0:10:19.600 summation of what happened. Does the changing of the calendar 0:10:19.760 --> 0:10:24.240 to September the end of summer cause a different tone 0:10:24.440 --> 0:10:27.000 in trading um? And is there anything in the in 0:10:27.000 --> 0:10:29.200 the options data that you saw that to sort of 0:10:29.200 --> 0:10:32.280 back up that idea? So now you know, in these 0:10:32.320 --> 0:10:34.520 times two thousand twenty, I would not take anything off 0:10:34.600 --> 0:10:36.960 the table. And you know, I'm sure there's a million 0:10:37.000 --> 0:10:40.680 different parts to this story. To me, it seems like 0:10:40.840 --> 0:10:46.439 these message board traders are just very reactive to market moves, 0:10:46.520 --> 0:10:49.720 and to a great degree they're focused on the call options. 0:10:49.720 --> 0:10:52.720 You can see that in UH, in the volume numbers, 0:10:53.000 --> 0:10:54.719 in the put call ratios, you can see it in 0:10:54.760 --> 0:10:56.520 a lot of different places. We have started to see 0:10:56.600 --> 0:11:00.760 selective spots where we are seeing um of this similar 0:11:00.760 --> 0:11:03.360 flow on the put side, but to a large degree, 0:11:03.720 --> 0:11:06.600 these investors seem to be following momentum, and we have 0:11:06.840 --> 0:11:10.520 certainly noticed when the market has had down days, we 0:11:10.559 --> 0:11:14.800 see significantly less of the same trading flow. What was 0:11:14.840 --> 0:11:17.720 the chicken, what was the egg? You know, not sure, 0:11:17.800 --> 0:11:20.760 but it certainly is true from what we're seeing, we're 0:11:20.760 --> 0:11:22.839 seeing less of this flow on the down days which 0:11:22.840 --> 0:11:24.760 we saw in the beginning of September. You know, and 0:11:25.160 --> 0:11:27.199 correct me if I'm wrong. That strikes me as a 0:11:27.240 --> 0:11:32.880 different sort of paradigm than the way UH professional traders 0:11:33.040 --> 0:11:35.240 use options. You know, they might use a call and 0:11:35.280 --> 0:11:37.880 a put some sort of you know, complex multi legged 0:11:38.240 --> 0:11:41.120 trade where the retail seems to have just been all 0:11:41.240 --> 0:11:43.760 in on calls, you know, trying to use them to 0:11:43.960 --> 0:11:47.760 hit home runs, whereas you're, you're more sophisticated hedge fund 0:11:47.800 --> 0:11:50.760 trader might be looking at some you know, kind of 0:11:50.840 --> 0:11:54.080 multi legged trades to to hit singles and doubles. Is 0:11:54.120 --> 0:11:58.840 that a fair sort of analogy there, do you think, um, absolutely, 0:11:58.840 --> 0:12:01.240 and I, you know, I do necessarily always think that 0:12:01.280 --> 0:12:03.920 the most complicated trades are always the best ones. And 0:12:03.960 --> 0:12:06.760 if you're looking at the retail traders that are just 0:12:06.840 --> 0:12:10.080 buying calls, it's all about sizing it correctly. There's a 0:12:10.120 --> 0:12:12.200 lot of value in a market like this where you 0:12:12.240 --> 0:12:15.559 see such dramatic moves to going out there and buying 0:12:15.559 --> 0:12:17.520 a call, where you know that max you can lose 0:12:17.800 --> 0:12:20.520 is the amount that you paid, and you're getting exposure 0:12:20.559 --> 0:12:22.800 to a stock that you want to get exposure to. 0:12:23.120 --> 0:12:25.080 And in terms of you know, how much risk are 0:12:25.080 --> 0:12:27.040 they taking? You know, if you're buying a stock at 0:12:27.080 --> 0:12:29.240 the same size, you have a lot more downside risk 0:12:29.280 --> 0:12:32.440 than a call, which has the embedded UH protection, you know. 0:12:32.520 --> 0:12:34.559 And you know also you know, selling the pot, which 0:12:34.600 --> 0:12:37.200 can definitely be a great strategy, but there's just more 0:12:37.360 --> 0:12:40.480 risk in those other types of strategies when you're just 0:12:40.559 --> 0:12:43.360 buying a call. You know, maybe that's related to the 0:12:43.400 --> 0:12:46.120 amount of margin or what not you're able to get 0:12:46.200 --> 0:12:49.000 from your brokerage. You know, maybe it's harder for um, 0:12:49.040 --> 0:12:51.960 you know, retail traders to do those more sophisticated strategies 0:12:52.000 --> 0:12:54.079 because maybe they have to put more to put more 0:12:54.120 --> 0:12:56.640 money up. But I guess my my main point on 0:12:56.679 --> 0:12:59.120 that is these calls it makes sense. There's a lot 0:12:59.160 --> 0:13:00.920 of reasons that they do. Makes sense, you know, if 0:13:00.920 --> 0:13:02.760 you're just looking to get exposure and you don't want 0:13:02.760 --> 0:13:18.600 to open up a lot of downside. Alright, So Mike 0:13:18.720 --> 0:13:22.920 mentioned quote unquote professional investors and the big name and 0:13:22.960 --> 0:13:24.600 all of this that's really come out over the past 0:13:24.640 --> 0:13:27.720 month after the Financial Times reported about soft Bank being 0:13:28.160 --> 0:13:32.560 the Nasdaq whale that has evolved. So you had in 0:13:32.600 --> 0:13:35.680 a recent report you spoke about these large so called 0:13:35.760 --> 0:13:39.000 risk reversals that were being unwound. And I remember I 0:13:39.040 --> 0:13:41.680 was speaking to you on a on a recent day, Um, 0:13:41.720 --> 0:13:44.080 that stops her trading lower, and some of these big 0:13:44.120 --> 0:13:47.040 trades look to be closing out. Is it at all 0:13:47.080 --> 0:13:51.520 possible to really know, um being an outsider that yeah, 0:13:51.640 --> 0:13:54.800 these were the trades that were being placed by soft 0:13:54.840 --> 0:13:57.720 Bank potentially, And even if you can't know that for sure, 0:13:57.880 --> 0:14:00.480 I mean, is it usual or is it posible that 0:14:00.559 --> 0:14:03.559 if such trades like these are closed out that they 0:14:03.559 --> 0:14:06.720 could have ripple effects through the market. Trades of those size, 0:14:06.920 --> 0:14:10.319 the risk reversals certainly can impact the market. Uh, and 0:14:10.640 --> 0:14:14.600 mostly those specific stocks, I think because of the speculation, 0:14:14.760 --> 0:14:18.559 because of the timing of everything. You know, Um, that 0:14:18.720 --> 0:14:21.440 was all has all been reported. Cash on the sidelines 0:14:22.000 --> 0:14:24.800 deployed buying big tech stocks, swap out of those tech 0:14:24.800 --> 0:14:27.880 stocks into call spreads, which is actually a risk reduction 0:14:28.120 --> 0:14:30.840 type of a move. UM. And then after all that, 0:14:30.960 --> 0:14:34.200 these bullish risk reversals, which are buying an upside call 0:14:34.360 --> 0:14:37.480 and selling and downside put. And what the investor may 0:14:37.480 --> 0:14:40.480 be trying to um look for there is these stocks 0:14:40.480 --> 0:14:42.800 have made a big run. I'm not necessarily sure I 0:14:42.840 --> 0:14:45.680 want to buy them right here, but if stock continues higher, 0:14:45.680 --> 0:14:48.080 I want to get back involved. And if they sell off, 0:14:48.120 --> 0:14:49.960 I'm gonna I'm gonna look to buy them on a tip. 0:14:50.520 --> 0:14:52.880 That all makes sense. Um, they were big trades, and 0:14:52.880 --> 0:14:55.480 they certainly had an impact. I think because of the reporting, 0:14:55.520 --> 0:14:58.880 the psychological aspect, the fact that people were looking for 0:14:59.080 --> 0:15:02.800 reasons um for market moves, I think that they probably 0:15:03.000 --> 0:15:05.800 had a bigger impact, and maybe they normally would have 0:15:05.880 --> 0:15:09.360 been if it was an unknown trade that was just large. Yeah, 0:15:09.400 --> 0:15:12.160 that's that's the way we were looking at it. Chris All, 0:15:12.200 --> 0:15:15.480 this is fascinating, but it's time for the really important question. 0:15:16.040 --> 0:15:17.640 When it's time for a cheese steak. Are you a 0:15:17.720 --> 0:15:20.720 Geno's guy or a Pat's guy. I've always been going 0:15:20.720 --> 0:15:23.120 to Genos, so I'm gonna stick with Genos. I like 0:15:23.200 --> 0:15:24.800 them both, though, I like them both all right. I'm 0:15:24.840 --> 0:15:30.080 the shortest line guy myself. That's true though, that's Sarah. 0:15:30.120 --> 0:15:31.440 We'll have to We'll have to get you there. I'm 0:15:31.440 --> 0:15:33.120 gonna have Yeah, I'm gonna have to make a trip 0:15:33.120 --> 0:15:38.000 out there. That's the most important reason for cheesecake. Chris, 0:15:38.000 --> 0:15:39.720 what one thing I wanted to ask it? I'm gonna 0:15:39.760 --> 0:15:41.560 warn you this might be one of my famous twelve 0:15:41.640 --> 0:15:45.880 part questions. You know, Sarah's as a derivatives guy, you know, 0:15:46.000 --> 0:15:48.200 who knows a lot about multi leg trades. I think 0:15:48.240 --> 0:15:49.800 he can handle a twelve part or what do you 0:15:49.800 --> 0:15:51.480 what do you think? Bring it on, Mike, I think 0:15:51.520 --> 0:15:54.600 he can handle it. I'm getting used to answering multiple 0:15:54.640 --> 0:15:59.560 questions at once with four young daughters. Oh wow, for 0:15:59.720 --> 0:16:01.960 a little girls, Chris, you you have your hands fall. 0:16:03.240 --> 0:16:05.720 How many of them are fixed? My WiFi? Now? Dad? 0:16:05.760 --> 0:16:11.400 I'm ye, that's definitely an issue with virtual schooling. But Chris, 0:16:11.440 --> 0:16:15.920 you know uh. Warren Buffett famously years ago how a 0:16:16.000 --> 0:16:21.600 crack about derivatives being the weapons of financial mass destruction. 0:16:22.320 --> 0:16:25.360 And I think, you know, the reaction from most people 0:16:25.800 --> 0:16:27.920 on Wall Street was like settled down war. And that's 0:16:28.000 --> 0:16:30.480 that's a little ridiculous. I mean, maybe, okay, find maybe 0:16:30.520 --> 0:16:33.400 the credit derivatives, but when it comes to you know, 0:16:33.520 --> 0:16:37.760 your your equity puts and calls, uh, no need for panic. 0:16:38.400 --> 0:16:41.440 But every now and then we do see an episode 0:16:41.760 --> 0:16:45.080 like this where you know whether it be you know, 0:16:45.120 --> 0:16:48.040 you remember when the t vix um e t F 0:16:48.200 --> 0:16:52.640 blew up, when the the inverse x I V volatility 0:16:52.640 --> 0:16:54.920 e t F blew up. I feel like the closer 0:16:55.000 --> 0:16:59.440 you get derivatives, equity derivatives, even the closer you get 0:16:59.480 --> 0:17:04.520 them to the the retail investor um, the more likelihood 0:17:04.560 --> 0:17:07.680 there is for some drama um. And I wonder if 0:17:07.720 --> 0:17:11.440 this episode that we saw this summer, is there any 0:17:11.440 --> 0:17:13.960 concern And I realized again this might be a little 0:17:13.960 --> 0:17:15.760 bit out of your wheelhouse about what you think about 0:17:15.760 --> 0:17:18.320 every day. But I wonder is there a concern about 0:17:18.359 --> 0:17:22.240 sort of some some scrutiny of the trading of options 0:17:22.240 --> 0:17:25.439 this summer from especially the mom and pop type of 0:17:25.440 --> 0:17:29.919 retail investors. UM, is that something that could be coming 0:17:30.200 --> 0:17:32.960 and UM, if you got dragged in front of Congress, 0:17:33.000 --> 0:17:36.880 I guess what would be your explanation on on what 0:17:36.960 --> 0:17:39.800 retail investors need to know about put some calls? Do 0:17:39.840 --> 0:17:43.359 they need some further regulatory scrutiny when it comes to 0:17:43.680 --> 0:17:47.679 to sort of small fry individual traders or was just 0:17:47.880 --> 0:17:50.119 this just a random anomaly that we can sort of 0:17:50.160 --> 0:17:53.760 not worry about. Going back to talking about the UM 0:17:53.920 --> 0:17:57.480 the risks of these trades. When you're buying calls, the 0:17:57.520 --> 0:17:59.679 most you can lose is the amount you paid, So 0:17:59.720 --> 0:18:03.480 that's so that's one thing. Sizing it is is critically important. 0:18:03.680 --> 0:18:05.800 You know, you don't want to take all your all 0:18:05.840 --> 0:18:08.720 your investment in Google stock, sell out of that and 0:18:08.800 --> 0:18:11.320 buy an upside Google call because you know the odds 0:18:11.320 --> 0:18:12.600 of it, you know, being if it's out of the 0:18:12.600 --> 0:18:15.080 money less than fifty even hit, you could lose all 0:18:15.119 --> 0:18:17.840 of your money. So you need to have the correct education. 0:18:17.920 --> 0:18:21.560 You need to size everything correctly to protect yourself. Now, 0:18:21.600 --> 0:18:24.399 in terms of this market, you know there's been statistics 0:18:24.400 --> 0:18:28.720 out there. Option volume compared to even UM equity volume 0:18:29.040 --> 0:18:32.480 has risen so much. These weekly options are typically all 0:18:32.680 --> 0:18:36.520 a penny why they're incredibly tight, they're incredibly liquid. They're 0:18:36.520 --> 0:18:39.600 not OTC products. They're not you know, murky things that 0:18:39.640 --> 0:18:42.520 you don't really understand what you're getting into. They are 0:18:42.560 --> 0:18:44.960 are really tracked well. So I actually really think that, 0:18:45.160 --> 0:18:47.000 you know, so long as the education is there, so 0:18:47.080 --> 0:18:50.160 long as investors understand, um, the bet that they're making 0:18:50.280 --> 0:18:52.280 or the investment that they're making when they're getting evolved 0:18:52.280 --> 0:18:55.880 in these options. UM, I don't think it's it's necessarily 0:18:55.960 --> 0:18:58.159 something where you know, where it's eighteen pages long and 0:18:58.200 --> 0:18:59.679 you're signing on something and you don't know what you 0:18:59.680 --> 0:19:02.560 know what what you're getting yourself into. Uh, these are, 0:19:02.600 --> 0:19:04.679 you know, like I said, the most liquid products probably 0:19:04.680 --> 0:19:07.399 out there, UM, that investors are getting involved in. I 0:19:07.400 --> 0:19:09.359 believe it was Goldmen Sacks who had a recent report 0:19:09.400 --> 0:19:11.800 pointing out the fact that we actually saw more volume 0:19:11.800 --> 0:19:15.920 in the options market than in the cash equity trading 0:19:16.560 --> 0:19:19.320 UH market for the first time ever this year, which 0:19:19.359 --> 0:19:21.919 is pretty just crazy to think about. The guys at 0:19:21.920 --> 0:19:28.639 Susquehanna were popping champagne quirks. I think so so, Chris, 0:19:29.320 --> 0:19:30.680 I have to put you on the spot. I mean, 0:19:30.680 --> 0:19:33.960 I'm just curious what you think then comes next. Obviously, 0:19:34.000 --> 0:19:36.639 there are so many other fundamental factors filtering into the 0:19:36.680 --> 0:19:40.960 stock market, whether it is fed policy, the fiscal cliff, 0:19:40.960 --> 0:19:42.960 because right now it still doesn't look like we have 0:19:43.640 --> 0:19:48.359 an agreement in Congress right now for another stimulus spill um, 0:19:48.400 --> 0:19:51.720 we're heading to the election, high valuations, whatever it might be. 0:19:52.400 --> 0:19:55.840 But this entire month, we have seen such volatility in 0:19:55.840 --> 0:19:58.040 the NASDAC. I mean, at least of the day that 0:19:58.080 --> 0:20:00.840 we're recording, there's only been a single day a that 0:20:00.920 --> 0:20:04.000 the Nasdaq hasn't moved more than one percent. It just 0:20:04.040 --> 0:20:07.720 feels like every single day is all or nothing almost 0:20:08.880 --> 0:20:12.639 With this continued, I guess I can call it froth 0:20:12.680 --> 0:20:14.840 in the options market or just extreme activity in the 0:20:14.880 --> 0:20:18.200 options market. Is this just the new normal as long 0:20:18.200 --> 0:20:22.000 as that continues. It's a combination of two things. Technology 0:20:22.040 --> 0:20:24.520 has just improved dramatically. You know, you used to have 0:20:24.600 --> 0:20:27.080 to call on a call a broker and wait online 0:20:27.080 --> 0:20:29.280 and pay a twenty five cent wide bid ask spread 0:20:29.320 --> 0:20:32.399 to to get involved in um in the options market. 0:20:32.480 --> 0:20:34.679 Now you can do it for free on your phone 0:20:34.920 --> 0:20:38.080 from anywhere, and and everything is so incredibly tight now 0:20:38.080 --> 0:20:41.719 in terms of the NASDAC volatility all through August, all 0:20:41.760 --> 0:20:43.840 through the summer. Even a lot of people are saying, Wow, 0:20:43.880 --> 0:20:46.560 this is crazy. This keep the NASDA keeps grinding higher. 0:20:46.560 --> 0:20:48.399 This doesn't make any sense, This doesn't This is going 0:20:48.440 --> 0:20:51.560 to have to sell off at some point. It's too frothy, etcetera, etcetera. 0:20:51.720 --> 0:20:54.640 Now we're seeing that, we're basically seeing what's happening now 0:20:54.760 --> 0:20:57.240 is what we're expecting to happen and talking about happening 0:20:57.600 --> 0:21:00.040