Speaker 1: Strap on your parachute. It's time for What Goes Up
Speaker 1: with Sarah Ponzick and Mike Reagan. Hello and welcome to
Speaker 1: What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah
Speaker 1: pons a reporter on the Cross Asset team, and Mike Reagan,
Speaker 1: a senior editor at Bloomberg. This week on the show.
Speaker 1: Over the last couple of weeks, a real spotline has
Speaker 1: shown on the options market, but questions still remain. How
Speaker 1: much can options actually wag the stock market dog? Who's
Speaker 1: to blame retail traders or soft bank who's now been
Speaker 1: deemed the Nazac whale? And of course what does this
Speaker 1: mean for investor as well? Not to build any pressure
Speaker 1: on our guest or anything, but he has all the answers.
Speaker 1: I was gonna say, Sarah, all all the answers. You're
Speaker 1: really uh, you're really putting this guy on the spot here.
Speaker 1: Not to hype it up too much, but I really,
Speaker 1: I really believe he does all the answers. I'm gonna
Speaker 1: ask him where where do babies come from? Let's see
Speaker 1: start with the most pressing of them. But as always,
Speaker 1: will close out the episode with our tradition the craziest
Speaker 1: thing I saw in markets this week. And please if
Speaker 1: you saw something crazy, give us a call on the
Speaker 1: Bloomberg Podcast hotline at six four or six three to
Speaker 1: four three four nine, oh, and leave us a voicemail.
Speaker 1: Maybe we'll play it on the show. And of course
Speaker 1: you can always tweet us at podcasts Now. Sarah, before
Speaker 1: I actually introduced this guest, you have to indulge me
Speaker 1: with a little bit of an old man nostalgia story
Speaker 1: here always always you like it when I wind up
Speaker 1: with the old the Old Guys series. Yeah. So, as
Speaker 1: you probably know, I grew up outside of Philadelphia, suburban Philadelphia,
Speaker 1: but my parents are from a little town called Wilkes Barre, Pennsylvania,
Speaker 1: which is further north in Pennsylvania, up in the mountains.
Speaker 1: It's a river town. When we would go back to
Speaker 1: visit my grandmother, my dad would always kind of revert
Speaker 1: back to a twelve year old boy, I think, and
Speaker 1: he'd take me and we'd go on little adventures around town.
Speaker 1: One of the things we did one time was we
Speaker 1: used to go throw rocks in the river um and
Speaker 1: one time we were up on a cliff throwing rocks
Speaker 1: out in the river right and all of a sudden,
Speaker 1: there must have been guys down on the bank fishing
Speaker 1: that we couldn't see. So they started winging the rocks
Speaker 1: back at us, and we had to high tail it
Speaker 1: back to my grandmother's house. We were all sweaty, and
Speaker 1: you know, she was like, what the what is what happened?
Speaker 1: And but I was like, nothing, nothing not, nothing's here?
Speaker 1: How this is relevant? Okay, you're ready? Yeah, I'm waiting
Speaker 1: for it. Could you name I bet you can't, but
Speaker 1: can you name that river I was throwing rocks into me?
Speaker 1: Named that river in Pennsylvania? Named that river? Uh, Susquehanna.
Speaker 1: Say it again? Try say to it again. Am I right?
Speaker 1: If we'll allow mispronunciations, you're you're correct, Susquehanna. Susquehanna. That
Speaker 1: was pretty good. Right, that's better. And that's Ralevant because
Speaker 1: obviously one of the biggest, most important firms in the
Speaker 1: options market is Susquehanna International Group, and we are lucky
Speaker 1: to have their co head of derivative Strategy on the
Speaker 1: show this week. His name is Chris Murphy. Chris, welcome
Speaker 1: to the show. It's great to be here. Thank you. Um.
Speaker 1: I'm also from the suburbs of Philadelphia. So I might
Speaker 1: not have I might have to not have all the answers,
Speaker 1: but I definitely have answers. So let's let's do this.
Speaker 1: You might have the answers to what happened to the
Speaker 1: Eagles last week? I don't know. I was watching the
Speaker 1: kids soccer. Luckily I missed it. Yeah you didn't, You
Speaker 1: didn't miss You didn't miss that. But Mike claim to fame.
Speaker 1: When I first got to Bloomberg a million years ago,
Speaker 1: was the the options guy reporter realized I could I
Speaker 1: could spell Susquehanna, And every time he was writing a story,
Speaker 1: how do you spell Susquehanna again? And I'd tell him
Speaker 1: and then he'd say, how do you spell balakin Wid
Speaker 1: which is where Susquehanna is located? And I think everyone
Speaker 1: else on the team thought I knew everything. It's like
Speaker 1: this guy knows everything. Yeah, he quickly became the most
Speaker 1: resourceful guy at Bloomberg. That's right, That's right. So so Chris,
Speaker 1: first question is how long did it take you to
Speaker 1: learn how to spell Susquehanna without looking twice? Well, I've
Speaker 1: been here sixteen years, so I was I figured out
Speaker 1: both of those before my headway point. So that's a
Speaker 1: pretty good that's about a good learning curve, I would say,
Speaker 1: I would say, they didn't make you try to spell
Speaker 1: it in your start off interview. You know, they did not.
Speaker 1: They did not. Luckily, Luckily I might not be here.
Speaker 1: Who knows what I do? I can spell all the
Speaker 1: tough filly area many on contrack and quiz me anytime.
Speaker 1: But but anyway, Chris, let's get to the heart of
Speaker 1: the matter here. As Sarah pointed out in the introductions,
Speaker 1: everybody is talking about the options market again, trying to
Speaker 1: suss out what role options trading may or may not
Speaker 1: have played in this ferocious rally in the equity market
Speaker 1: and now a little bit of a correction since the
Speaker 1: beginning of September. You know, from your seat, what was
Speaker 1: it look like watching the options market this year? I'm
Speaker 1: guessing it was a very unusual environment. Was this almost
Speaker 1: like nothing you've ever seen before? This much sort of
Speaker 1: retail interest and now we're learning about even bigger institutional
Speaker 1: interest from the likes of Soft Bank. I mean, what
Speaker 1: was it like watching all this flow go by? Yeah?
Speaker 1: I mean, I think you hit the nail on the
Speaker 1: head the most notable change that we've seen this year
Speaker 1: is just the explosion in the retail trading flow concentrated
Speaker 1: in the front two weeks. We did some analysis recently
Speaker 1: where we looked at what percentage of overall option trading
Speaker 1: volume was in the front two weeks before coronavirus and
Speaker 1: before all the brokerage houses we're starting to give out
Speaker 1: no fee option trading. It was you know around UH.
Speaker 1: Now it's closer to that's a huge difference, just UH
Speaker 1: concentrated in the front two weeks. That trading is unique,
Speaker 1: and I think you know, when you're reading about it
Speaker 1: and looking at it, you see these giant volume numbers.
Speaker 1: But what not a lot of people are are pointing
Speaker 1: out is that the volume numbers at the end of
Speaker 1: the day, when you compare them to the change in
Speaker 1: open interest the next day, the change in open interest
Speaker 1: is a fraction. For a lot of these what we
Speaker 1: call message board trading stocks that we've been tracking here
Speaker 1: is a fraction of the volume number. So what that
Speaker 1: means is over the course of the day, these options
Speaker 1: were as we are assuming um for your number of
Speaker 1: ways that we track it are being bought early on,
Speaker 1: but then a lot of them are closed by the
Speaker 1: end of the day UM, So their long term impact,
Speaker 1: you know, when they're open and closed the same day,
Speaker 1: is not huge. But over time that open interest does
Speaker 1: build up UM and by the time we get to expiration,
Speaker 1: that's when you see a lot of a larger moves.
Speaker 1: For example, we were looking at Apple and we looked
Speaker 1: at the inter day trading range for Monday through Thursday,
Speaker 1: UM pretty consistent across the board, and back in two
Speaker 1: thousand nineteen the Friday was moving at a similar range.
Speaker 1: But recently the moves on Fridays have been around wider UM,
Speaker 1: and we think that's, you know, really due to a
Speaker 1: build up in open interests from a lot of this
Speaker 1: retail trading, so this message board trading. You mentioned that
Speaker 1: if if a lot of this is being open and
Speaker 1: closed in the same day, you said, the long term
Speaker 1: impact isn't that large. However, I think it's come to
Speaker 1: been well understood that options did play a role in
Speaker 1: this run up, this massive run up that we had
Speaker 1: in August, particularly in some of these stocks like Apple,
Speaker 1: like Tesla. Can you walk us through the dynamics of that,
Speaker 1: though I know a lot of Greek letters get thrown
Speaker 1: out and about. But how is that actually possible that
Speaker 1: you can almost have this army of small day traders
Speaker 1: trading options in and out very quickly UM in small lots,
Speaker 1: and that actually can somehow move prices, especially of large companies.
Speaker 1: You know, even though a lot of it is open
Speaker 1: and closed the same day, over time that open interest
Speaker 1: builds up. So let's just stick with Apple for example,
Speaker 1: UM and September expiration is on Friday, UH and last
Speaker 1: I check, Apple was around a hundred and twelve and
Speaker 1: a half bucks somewhere around there, maybe a little bit
Speaker 1: lower UM and the strike with the most open interest
Speaker 1: because of this, a lot of it due to the
Speaker 1: retail trading adding up over the course of weeks and
Speaker 1: weeks and weeks, UM had around seventy five thousand open
Speaker 1: interest call contracts. So you know, let's say you're a
Speaker 1: market maker and Apple is add ten dollars, so it's
Speaker 1: below the strike. You have to buy some stock to
Speaker 1: hedge your short call position, but not a lot, let's
Speaker 1: say worth of how much UM culture short The next morning,
Speaker 1: if Apples up at one fift, you have to go
Speaker 1: back out there and buy some more stock. Now, there's
Speaker 1: a lot of forces at play. But because these option
Speaker 1: positions are getting so big, and because the market makers
Speaker 1: being forced to go out and buy stock, that does
Speaker 1: have an impact on the stock um and would move
Speaker 1: the stock higher if they are out there buying another
Speaker 1: day later stocks a hundred and twenty, the market maker
Speaker 1: has to go out there and buy more. And this
Speaker 1: works in both directions. Apple at twenty, these calls are
Speaker 1: way in the money. All the market makers are hedged
Speaker 1: pretty much the equivalent amount of stock to the calls
Speaker 1: that they're short. And then we start selling off like
Speaker 1: we did in in September, and all of a sudden,
Speaker 1: those calls are out of the money. Well, they don't
Speaker 1: need that long stock as a hedge anymore, so they
Speaker 1: need to sell it as well. They're just looking to
Speaker 1: stay flat. So this is gonna exacerbate moves in either direction. Um.
Speaker 1: You know, as we saw this week, you know, the
Speaker 1: FED things like that, that's still you know, the major
Speaker 1: catalyst that is moving markets. But the increased trading and
Speaker 1: open interest in the options is just going to work
Speaker 1: to exacerbate moves in either direction. Um, if we are
Speaker 1: working under the assumption, which I think is a good one,
Speaker 1: that that retail is um, mostly net long a lot
Speaker 1: of these options. Chris, did you notice any sort of
Speaker 1: change in the complexion of the option markets right there
Speaker 1: at the beginning of September when the market sort of
Speaker 1: peaked and rolled over? You know, the jokes, I've got
Speaker 1: a piece in Business Week to sort of plug my
Speaker 1: own book here, you know, people joking about, well, the
Speaker 1: Robin Hood traders had to go back to high school,
Speaker 1: and you know, the the NFL Week one lines came
Speaker 1: out and there was more interesting stuff to to bet on.
Speaker 1: But I wonder there is there a little bit of
Speaker 1: element of truth to that type of sort of humorous
Speaker 1: summation of what happened. Does the changing of the calendar
Speaker 1: to September the end of summer cause a different tone
Speaker 1: in trading um? And is there anything in the in
Speaker 1: the options data that you saw that to sort of
Speaker 1: back up that idea? So now you know, in these
Speaker 1: times two thousand twenty, I would not take anything off
Speaker 1: the table. And you know, I'm sure there's a million
Speaker 1: different parts to this story. To me, it seems like
Speaker 1: these message board traders are just very reactive to market moves,
Speaker 1: and to a great degree they're focused on the call options.
Speaker 1: You can see that in UH, in the volume numbers,
Speaker 1: in the put call ratios, you can see it in
Speaker 1: a lot of different places. We have started to see
Speaker 1: selective spots where we are seeing um of this similar
Speaker 1: flow on the put side, but to a large degree,
Speaker 1: these investors seem to be following momentum, and we have
Speaker 1: certainly noticed when the market has had down days, we
Speaker 1: see significantly less of the same trading flow. What was
Speaker 1: the chicken, what was the egg? You know, not sure,
Speaker 1: but it certainly is true from what we're seeing, we're
Speaker 1: seeing less of this flow on the down days which
Speaker 1: we saw in the beginning of September. You know, and
Speaker 1: correct me if I'm wrong. That strikes me as a
Speaker 1: different sort of paradigm than the way UH professional traders
Speaker 1: use options. You know, they might use a call and
Speaker 1: a put some sort of you know, complex multi legged
Speaker 1: trade where the retail seems to have just been all
Speaker 1: in on calls, you know, trying to use them to
Speaker 1: hit home runs, whereas you're, you're more sophisticated hedge fund
Speaker 1: trader might be looking at some you know, kind of
Speaker 1: multi legged trades to to hit singles and doubles. Is
Speaker 1: that a fair sort of analogy there, do you think, um, absolutely,
Speaker 1: and I, you know, I do necessarily always think that
Speaker 1: the most complicated trades are always the best ones. And
Speaker 1: if you're looking at the retail traders that are just
Speaker 1: buying calls, it's all about sizing it correctly. There's a
Speaker 1: lot of value in a market like this where you
Speaker 1: see such dramatic moves to going out there and buying
Speaker 1: a call, where you know that max you can lose
Speaker 1: is the amount that you paid, and you're getting exposure
Speaker 1: to a stock that you want to get exposure to.
Speaker 1: And in terms of you know, how much risk are
Speaker 1: they taking? You know, if you're buying a stock at
Speaker 1: the same size, you have a lot more downside risk
Speaker 1: than a call, which has the embedded UH protection, you know.
Speaker 1: And you know also you know, selling the pot, which
Speaker 1: can definitely be a great strategy, but there's just more
Speaker 1: risk in those other types of strategies when you're just
Speaker 1: buying a call. You know, maybe that's related to the
Speaker 1: amount of margin or what not you're able to get
Speaker 1: from your brokerage. You know, maybe it's harder for um,
Speaker 1: you know, retail traders to do those more sophisticated strategies
Speaker 1: because maybe they have to put more to put more
Speaker 1: money up. But I guess my my main point on
Speaker 1: that is these calls it makes sense. There's a lot
Speaker 1: of reasons that they do. Makes sense, you know, if
Speaker 1: you're just looking to get exposure and you don't want
Speaker 1: to open up a lot of downside. Alright, So Mike
Speaker 1: mentioned quote unquote professional investors and the big name and
Speaker 1: all of this that's really come out over the past
Speaker 1: month after the Financial Times reported about soft Bank being
Speaker 1: the Nasdaq whale that has evolved. So you had in
Speaker 1: a recent report you spoke about these large so called
Speaker 1: risk reversals that were being unwound. And I remember I
Speaker 1: was speaking to you on a on a recent day, Um,
Speaker 1: that stops her trading lower, and some of these big
Speaker 1: trades look to be closing out. Is it at all
Speaker 1: possible to really know, um being an outsider that yeah,
Speaker 1: these were the trades that were being placed by soft
Speaker 1: Bank potentially, And even if you can't know that for sure,
Speaker 1: I mean, is it usual or is it posible that
Speaker 1: if such trades like these are closed out that they
Speaker 1: could have ripple effects through the market. Trades of those size,
Speaker 1: the risk reversals certainly can impact the market. Uh, and
Speaker 1: mostly those specific stocks, I think because of the speculation,
Speaker 1: because of the timing of everything. You know, Um, that
Speaker 1: was all has all been reported. Cash on the sidelines
Speaker 1: deployed buying big tech stocks, swap out of those tech
Speaker 1: stocks into call spreads, which is actually a risk reduction
Speaker 1: type of a move. UM. And then after all that,
Speaker 1: these bullish risk reversals, which are buying an upside call
Speaker 1: and selling and downside put. And what the investor may
Speaker 1: be trying to um look for there is these stocks
Speaker 1: have made a big run. I'm not necessarily sure I
Speaker 1: want to buy them right here, but if stock continues higher,
Speaker 1: I want to get back involved. And if they sell off,
Speaker 1: I'm gonna I'm gonna look to buy them on a tip.
Speaker 1: That all makes sense. Um, they were big trades, and
Speaker 1: they certainly had an impact. I think because of the reporting,
Speaker 1: the psychological aspect, the fact that people were looking for
Speaker 1: reasons um for market moves, I think that they probably
Speaker 1: had a bigger impact, and maybe they normally would have
Speaker 1: been if it was an unknown trade that was just large. Yeah,
Speaker 1: that's that's the way we were looking at it. Chris All,
Speaker 1: this is fascinating, but it's time for the really important question.
Speaker 1: When it's time for a cheese steak. Are you a
Speaker 1: Geno's guy or a Pat's guy. I've always been going
Speaker 1: to Genos, so I'm gonna stick with Genos. I like
Speaker 1: them both, though, I like them both all right. I'm
Speaker 1: the shortest line guy myself. That's true though, that's Sarah.
Speaker 1: We'll have to We'll have to get you there. I'm
Speaker 1: gonna have Yeah, I'm gonna have to make a trip
Speaker 1: out there. That's the most important reason for cheesecake. Chris,
Speaker 1: what one thing I wanted to ask it? I'm gonna
Speaker 1: warn you this might be one of my famous twelve
Speaker 1: part questions. You know, Sarah's as a derivatives guy, you know,
Speaker 1: who knows a lot about multi leg trades. I think
Speaker 1: he can handle a twelve part or what do you
Speaker 1: what do you think? Bring it on, Mike, I think
Speaker 1: he can handle it. I'm getting used to answering multiple
Speaker 1: questions at once with four young daughters. Oh wow, for
Speaker 1: a little girls, Chris, you you have your hands fall.
Speaker 1: How many of them are fixed? My WiFi? Now? Dad?
Speaker 1: I'm ye, that's definitely an issue with virtual schooling. But Chris,
Speaker 1: you know uh. Warren Buffett famously years ago how a
Speaker 1: crack about derivatives being the weapons of financial mass destruction.
Speaker 1: And I think, you know, the reaction from most people
Speaker 1: on Wall Street was like settled down war. And that's
Speaker 1: that's a little ridiculous. I mean, maybe, okay, find maybe
Speaker 1: the credit derivatives, but when it comes to you know,
Speaker 1: your your equity puts and calls, uh, no need for panic.
Speaker 1: But every now and then we do see an episode
Speaker 1: like this where you know whether it be you know,
Speaker 1: you remember when the t vix um e t F
Speaker 1: blew up, when the the inverse x I V volatility
Speaker 1: e t F blew up. I feel like the closer
Speaker 1: you get derivatives, equity derivatives, even the closer you get
Speaker 1: them to the the retail investor um, the more likelihood
Speaker 1: there is for some drama um. And I wonder if
Speaker 1: this episode that we saw this summer, is there any
Speaker 1: concern And I realized again this might be a little
Speaker 1: bit out of your wheelhouse about what you think about
Speaker 1: every day. But I wonder is there a concern about
Speaker 1: sort of some some scrutiny of the trading of options
Speaker 1: this summer from especially the mom and pop type of
Speaker 1: retail investors. UM, is that something that could be coming
Speaker 1: and UM, if you got dragged in front of Congress,
Speaker 1: I guess what would be your explanation on on what
Speaker 1: retail investors need to know about put some calls? Do
Speaker 1: they need some further regulatory scrutiny when it comes to
Speaker 1: to sort of small fry individual traders or was just
Speaker 1: this just a random anomaly that we can sort of
Speaker 1: not worry about. Going back to talking about the UM
Speaker 1: the risks of these trades. When you're buying calls, the
Speaker 1: most you can lose is the amount you paid, So
Speaker 1: that's so that's one thing. Sizing it is is critically important.
Speaker 1: You know, you don't want to take all your all
Speaker 1: your investment in Google stock, sell out of that and
Speaker 1: buy an upside Google call because you know the odds
Speaker 1: of it, you know, being if it's out of the
Speaker 1: money less than fifty even hit, you could lose all
Speaker 1: of your money. So you need to have the correct education.
Speaker 1: You need to size everything correctly to protect yourself. Now,
Speaker 1: in terms of this market, you know there's been statistics
Speaker 1: out there. Option volume compared to even UM equity volume
Speaker 1: has risen so much. These weekly options are typically all
Speaker 1: a penny why they're incredibly tight, they're incredibly liquid. They're
Speaker 1: not OTC products. They're not you know, murky things that
Speaker 1: you don't really understand what you're getting into. They are
Speaker 1: are really tracked well. So I actually really think that,
Speaker 1: you know, so long as the education is there, so
Speaker 1: long as investors understand, um, the bet that they're making
Speaker 1: or the investment that they're making when they're getting evolved
Speaker 1: in these options. UM, I don't think it's it's necessarily
Speaker 1: something where you know, where it's eighteen pages long and
Speaker 1: you're signing on something and you don't know what you
Speaker 1: know what what you're getting yourself into. Uh, these are,
Speaker 1: you know, like I said, the most liquid products probably
Speaker 1: out there, UM, that investors are getting involved in. I
Speaker 1: believe it was Goldmen Sacks who had a recent report
Speaker 1: pointing out the fact that we actually saw more volume
Speaker 1: in the options market than in the cash equity trading
Speaker 1: UH market for the first time ever this year, which
Speaker 1: is pretty just crazy to think about. The guys at
Speaker 1: Susquehanna were popping champagne quirks. I think so so, Chris,
Speaker 1: I have to put you on the spot. I mean,
Speaker 1: I'm just curious what you think then comes next. Obviously,
Speaker 1: there are so many other fundamental factors filtering into the
Speaker 1: stock market, whether it is fed policy, the fiscal cliff,
Speaker 1: because right now it still doesn't look like we have
Speaker 1: an agreement in Congress right now for another stimulus spill um,
Speaker 1: we're heading to the election, high valuations, whatever it might be.
Speaker 1: But this entire month, we have seen such volatility in
Speaker 1: the NASDAC. I mean, at least of the day that
Speaker 1: we're recording, there's only been a single day a that
Speaker 1: the Nasdaq hasn't moved more than one percent. It just
Speaker 1: feels like every single day is all or nothing almost
Speaker 1: With this continued, I guess I can call it froth
Speaker 1: in the options market or just extreme activity in the
Speaker 1: options market. Is this just the new normal as long
Speaker 1: as that continues. It's a combination of two things. Technology
Speaker 1: has just improved dramatically. You know, you used to have
Speaker 1: to call on a call a broker and wait online
Speaker 1: and pay a twenty five cent wide bid ask spread
Speaker 1: to to get involved in um in the options market.
Speaker 1: Now you can do it for free on your phone
Speaker 1: from anywhere, and and everything is so incredibly tight now
Speaker 1: in terms of the NASDAC volatility all through August, all
Speaker 1: through the summer. Even a lot of people are saying, Wow,
Speaker 1: this is crazy. This keep the NASDA keeps grinding higher.
Speaker 1: This doesn't make any sense, This doesn't This is going
Speaker 1: to have to sell off at some point. It's too frothy, etcetera, etcetera.
Speaker 1: Now we're seeing that, we're basically seeing what's happening now
Speaker 1: is what we're expecting to happen and talking about happening
Speaker 1: for much of the summer um now looking for it
Speaker 1: along the calendar, we're getting pretty close to a giant
Speaker 1: event in the US election, and so I don't think
Speaker 1: volatility is going to be slowing down anytime soon. We
Speaker 1: have looked at this election, the the amount of alatility
Speaker 1: price into this election compared to other elections, you know,
Speaker 1: by looking at non election volatility month of the VIX
Speaker 1: compared to the election volatility month, and it's price again
Speaker 1: more for this election than it hasn't in a number
Speaker 1: of years. Um. And then another interesting phenomenon that's just
Speaker 1: been happening very recently, so for the entire year. If
Speaker 1: you're looking at we're talking about the VIX now, the
Speaker 1: VIX October futures. They look at the implied volatility a
Speaker 1: month out from October expiration that includes the election. Those
Speaker 1: have been the highest option on the board, and higher
Speaker 1: than the November which comes the following month for the
Speaker 1: entire year. Just recently now, uh, the November futures have
Speaker 1: moved above the October futures. You know, I have really
Speaker 1: no opinion on the odds of a contested election and
Speaker 1: try to stay out of politics in general. But that
Speaker 1: is the thing that people are pointing at most as why,
Speaker 1: all of a sudden, after a full year of this
Speaker 1: not happening, are we expecting um more volatility in the
Speaker 1: month after the election than the actual election. So with
Speaker 1: that overhang, um, with all, with the nasdak um moving
Speaker 1: around so much, I don't expect volatility to be coming
Speaker 1: in anytime soon. You know. It's it's kind of chilling
Speaker 1: it away when if you know, if you believe that
Speaker 1: sort of the hive mind of of the markets has
Speaker 1: a lot of sort of you know, the intelligence of crowds,
Speaker 1: the wisdom of crowds. That's that's kind of an alarming
Speaker 1: prospect to think about what the election coming up. You know,
Speaker 1: Chris that for a while there. To me, it looked
Speaker 1: like it would have been really tempting to play that
Speaker 1: tink in the vix curve that you mentioned, you know,
Speaker 1: maybe sell October and by November. I guess that doesn't
Speaker 1: really make as much sense anymore, if if it ever
Speaker 1: really did. You know, what what would you you know,
Speaker 1: if I'm coming to you as a client saying I
Speaker 1: wanna I want to do something with this vixed curve
Speaker 1: for the rest of year, What's what's looking good to you?
Speaker 1: What what type of trade would you want to get into? Well, yeah,
Speaker 1: we looked at the exact trade that you are talking about,
Speaker 1: um a few months back, and when October was way
Speaker 1: higher than November, and we said November might be a
Speaker 1: little bit under under priced here. Uh, now that that
Speaker 1: has flipped, it is really hard to have a strong
Speaker 1: opinion on on what's going to happen with the election
Speaker 1: and a contested election. I mean, I will say two
Speaker 1: thousand twenty, the year that it has been, you know,
Speaker 1: a contested election seems to be pretty fit for everything
Speaker 1: else that that's been going on. You know, I don't,
Speaker 1: like I said, I don't really have a strong opinion
Speaker 1: on how I would take advantage of that right here.
Speaker 1: You know, if I was looking to hedge the election
Speaker 1: in general, um, you know, like I said, I think
Speaker 1: volatility is gonna stay relatively high heading into the election. Uh.
Speaker 1: And you have a lot of tech earnings in October UM,
Speaker 1: So if I were to try to um position for
Speaker 1: the election, I think that with the tech earnings, and
Speaker 1: you're probably gonna see less correlation in those earnings. So
Speaker 1: maybe the stoction moving in different directions. Maybe the market
Speaker 1: doesn't actually move quite as much UM as it does
Speaker 1: now without those different catalysts pulling it in different directions.
Speaker 1: Maybe I would look to sell some some October volatility,
Speaker 1: take advantage of some lower correlation activity in October, and
Speaker 1: just position for the November election. And and like I said,
Speaker 1: this is gonna be a real hard one to handicapped,
Speaker 1: and not really one that I have a strong opinion on.
Speaker 1: So I mean, it does seem very widely believed that
Speaker 1: we're going to have increased volatility heading into the election.
Speaker 1: Something I noticed, Chris that I don't really understand. This week,
Speaker 1: I was looking at the v vix so volatility of volatility,
Speaker 1: and noticed that it fell to the lowest levels since February,
Speaker 1: so before all of this really began. How was that
Speaker 1: possible when expectations for volatility going forwards are high. That's
Speaker 1: a that's a great observation, you know. The only thing
Speaker 1: that I can think of, because I really haven't looked
Speaker 1: at that this week, is the election event is such
Speaker 1: a sticky event that's going to keep because volatility works
Speaker 1: in both ways, volatility of the VIX, whether it's going
Speaker 1: to go lower or whether it's going to go higher.
Speaker 1: You have this election event that has pretty consistently been
Speaker 1: around thirty one thirty two for those October VIX futures.
Speaker 1: If you were to look at a lot of different
Speaker 1: time frames, it's kind of been around there. So if
Speaker 1: you think it's gonna hold around there for the next
Speaker 1: month and a half, maybe it makes sense that the
Speaker 1: actual VIX is not going to be moving around quite
Speaker 1: as much because that's the volatility of the VIX. And
Speaker 1: if you have a sticky maturity out there for the election,
Speaker 1: maybe that could actually work to suppress the VIX. The
Speaker 1: VIX volatility, all right, sir, that's not bad for a
Speaker 1: Genos guy. I gotta say, I'll give it him. I'll
Speaker 1: give it to him. Yeah, although I'm more of I'm
Speaker 1: I'm a local. I'm a local pizza place. Cheese steak guy,
Speaker 1: there's a good balanquin would was it just ballat pizzas
Speaker 1: or what it's called. That's a pretty good, pretty good
Speaker 1: to tell you what. I think. Guys are gonna kill
Speaker 1: me for not remembering. It's in the tip of my
Speaker 1: tongue and I just can't. I just can't. It's gonna
Speaker 1: come to me right when it's open the podcast. You know,
Speaker 1: I'm so embarrassed now because I just realized you said
Speaker 1: cheese steak, which I should have understood with Philly and
Speaker 1: rather than cheesecake. She's really missing you through the zoom cheesecake. Okay,
Speaker 1: all right, Sarah. I was like, I didn't know cheesecake
Speaker 1: was a Philly thing, but I'll go with it. Maybe
Speaker 1: it is. I don't know. I'll you'll, I'll have a cheesecake.
Speaker 1: I don't know if there's any good Philly cheesecake places,
Speaker 1: but anyway, I think that's good assign as any that
Speaker 1: it's that time. Charlie Pellett will tell us what time
Speaker 1: it is. Stand clear of the craziest things we saw
Speaker 1: in markets this week Sarah Um, I don't know how
Speaker 1: well prepared you are for for this particular episode of
Speaker 1: the Craziest Things we Saw on Markets. I'm gonna warn
Speaker 1: you though, I came. I came packing some heat. See
Speaker 1: him coming big. I don't know if you did, though,
Speaker 1: because I heard from our Crazy Things correspondent that you
Speaker 1: may have asked for some help. So I did. I did.
Speaker 1: I asked Phil Donna. She totally let me down. Nothing
Speaker 1: worth it. And then I found my own. And Uh,
Speaker 1: I'll let Chris go, and I'll let you go. I'm
Speaker 1: not going to predict that I won just yet. Okay,
Speaker 1: I'll wait, I'll wait. Go ahead. First, I'll say, well,
Speaker 1: I expect Chris Is to be strong too, because I
Speaker 1: know he's a listener of the podcast, so he knows
Speaker 1: what we expect every week from our guests. You've already
Speaker 1: put enough pressure on him. Uh. With all the answers,
Speaker 1: all right, let's start with you, Chris. What's the craziest
Speaker 1: thing you saw in markets this week? So I was
Speaker 1: waiting all week for Tesla to do something crazy, because
Speaker 1: I'm sure you don't have too many of those, and
Speaker 1: nothing ever happened. It's been pretty boring. In Tesla this
Speaker 1: week we talked about the vix Um contested election future situation.
Speaker 1: So I still have a couple more. I had a
Speaker 1: serious one and a not serious one. Um First, on Wednesday,
Speaker 1: Kim Kardashian mentioned that she was going to shut down
Speaker 1: her Facebook for twenty four hours. Stock immediately dropped four
Speaker 1: dollars on the news down to round two and seventy
Speaker 1: bucks on the announcement, which equates almost a ten billion
Speaker 1: dollar drop in market cap. You know, stock was down
Speaker 1: almost twenty billion over twenty four hours after that. You know,
Speaker 1: there was a rotation at a large cap tech. There
Speaker 1: was an FTC probe announcement, the FED announcement, but I
Speaker 1: have to imagine a lot of it was due to Kim. Sir,
Speaker 1: this guy is pretty good. I I I thought I
Speaker 1: had it in the bag this week, but that that
Speaker 1: is a good one. I remember you in the chat
Speaker 1: saying this can't really be happening. Kind of Well, I
Speaker 1: couldn't believe it because not only it did, I mean
Speaker 1: Facebooks a very large company with a very big waiting
Speaker 1: in all the benchmarks, but I mean you saw the
Speaker 1: SMP saw that AzaC. I'll take a hit too, and
Speaker 1: it was just Kim Kardashian. That's just Kim being Kim,
Speaker 1: just Kim being Kim. Yeah, Chris, bravo, that was well done.
Speaker 1: Well done. That is I forgot about that too. I
Speaker 1: can't believe I forgot about that one. Alright, sir, that's
Speaker 1: the tough fact to follow. But what do you got? So?
Speaker 1: I feel like Kim Kardashian being able to move the
Speaker 1: stock market in is just very so. I also have
Speaker 1: a statistic that is quintessential um kind of in the
Speaker 1: realm of the saying that stocks only go up. So
Speaker 1: Golden Sacks has an index that tracks the most heavily
Speaker 1: shorted stocks, and in the middle of this week, uh,
Speaker 1: that index hit a record So um one some pretty
Speaker 1: bad shorts. I may feel bad for anyone who has
Speaker 1: tried to short those names this year. I mean the
Speaker 1: fact that you have an index of the most shorted
Speaker 1: stocks and it's trading out a record high. I mean,
Speaker 1: come on out, Maybe we need we need an e
Speaker 1: t F that goes long all the most shorted stocks.
Speaker 1: That that uh, then you can just short the whole
Speaker 1: thing if you want to, If you want to be
Speaker 1: short the most contrarian trade. That's pretty good. That's a
Speaker 1: pretty good one. All right. Well I'll give you mine. Um, Sarah,
Speaker 1: did you ever have a birthday party at Chuck E Cheese?
Speaker 1: I think I did. It may have been one of
Speaker 1: my siblings, but I remember it as if it was
Speaker 1: my own. Chris, something tells me you've you've had a
Speaker 1: few birthday You've at least spend a few birthday parties
Speaker 1: at Chuck E Cheese. Is all right? I've probably been
Speaker 1: to about six and a half a year for the
Speaker 1: past ninety but not this year. All right, Well, nope,
Speaker 1: tell your kids about this story and watch their eyes
Speaker 1: go go googly. So Chuck E Cheese is in bankruptcy
Speaker 1: court right now, and they had to go to the
Speaker 1: court to get approval to destroy seven billion with a
Speaker 1: B seven billion of those prize tickets that they give
Speaker 1: out that you can get, you know, stuffed animal or
Speaker 1: pencil eraser or whatever, with seven billion prize tickets. And
Speaker 1: they told the judge that it's enough tickets to a
Speaker 1: fill approximately six cargo shipping containers. And the cost to
Speaker 1: destroy all these is like two point three million dollars
Speaker 1: just to destroy these tickets. I can't be recycled I'm dumbfounded. Yeah,
Speaker 1: I don't know. The story doesn't get into that. I
Speaker 1: don't know how you destroy well, how do you recycle.
Speaker 1: I guess you recycle the paper, but I don't know.
Speaker 1: You'd have some kids, you know, picking the trash, showing
Speaker 1: up at your Chucky Cheese with seven billion tickets wanting
Speaker 1: give me everything, give me the whole company. It's gonna
Speaker 1: be one lucky guy, lucky, one lucky eight year old Chris.
Speaker 1: If you got any of those tickets, you better cash
Speaker 1: mean while you can, might get you the robot at
Speaker 1: the top right, get you. That's right, you can have
Speaker 1: the guy in the Chucky Cheese costume come and cut
Speaker 1: your lawn or something. Every prize in the store. I
Speaker 1: remember when I was younger, I I always only found
Speaker 1: enough prize tickets to get one of those. I don't
Speaker 1: know how to explain it. It's one of those half
Speaker 1: moon looking rubber things where you turn them inside out
Speaker 1: and they pop. When you're younger, they're really exciting. That
Speaker 1: was about the most exciting thing I could ever win
Speaker 1: with my tickets. They're still pretty exciting, all right. I
Speaker 1: gotta give it to Chris. The the Kardashian market mover
Speaker 1: story is pretty darn good, Chris, well done, thank you,
Speaker 1: very well done, Very well done. A serious one. Yeah,
Speaker 1: so you said you had to a serious one and
Speaker 1: a not serious one. So before we let you go,
Speaker 1: you have to share your not serious one, because as
Speaker 1: you know, Mike and I are big fans of not
Speaker 1: serious things. Oh no, that So my other one was
Speaker 1: the Apple into day move this month has been around
Speaker 1: five percent a day. Uh, that's about nine billion dollar
Speaker 1: change in market cap each day. So staying in that,
Speaker 1: in another way, Apple has been changed in value each
Speaker 1: day by basically the value of the entire company of Starbucks.
Speaker 1: So that's actually my series one. That's a that's a
Speaker 1: good one. That reminds me actually pretty crazy that none
Speaker 1: of us brought up snow either. Snowflake the company that
Speaker 1: I p oed uh at the end of its I
Speaker 1: p O seventy billion dollar company about the value of
Speaker 1: Goldman sachs Um and so many people hadn't heard of
Speaker 1: Snowflake before. I know I hadn't. I know I hadn't.
Speaker 1: But we talked about great timing to be a cloud
Speaker 1: company come market now. But all right, Chris put it
Speaker 1: on the resume was winner of the Craziest Thing for
Speaker 1: the third week of September. Put that at the top,
Speaker 1: top of the awards and uh, what is it on
Speaker 1: your resume? Awards and other distinctions or something like the certificates.
Speaker 1: Put it on there. Congratulator, I will, I will take anything,
Speaker 1: and I'll and I'll also say, Chris um, you had
Speaker 1: all the answers, so we're so so happy that we
Speaker 1: could have you on the show this week. Again, that
Speaker 1: was Chris Murphy with Susquehanna. Thanks for joining the show.
Speaker 1: Thanks guys, What Goes Up? We'll be back next week.
Speaker 1: Until then, you can find us on the Bloomberg Terminal
Speaker 1: website and app or wherever you get your podcasts. We'd
Speaker 1: love it if you took the time to rate and
Speaker 1: review the show on Apple Podcasts so more listeners can
Speaker 1: find us. And you can find us on Twitter, follow
Speaker 1: me at at Sarah Pontzack, Mike is that Reaganonymous, and
Speaker 1: you can also follow Bloomberg Podcasts at podcasts. Also, thank
Speaker 1: you to Charlie Pellett of Bloomberg Radio and the voice
Speaker 1: of the New York City Subway System. What Goes Up
Speaker 1: as produced by Jordan Gospore. The head of Bloomberg podcast
Speaker 1: is Francesco Levie. Thanks for listening, See you next time.