1 00:00:10,920 --> 00:00:14,680 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,720 --> 00:00:19,000 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, I 3 00:00:19,040 --> 00:00:21,760 Speaker 1: feel like there are some episodes of this where like 4 00:00:22,160 --> 00:00:24,320 Speaker 1: where I, well, there are some episodes of our podcast 5 00:00:24,320 --> 00:00:27,480 Speaker 1: where I think like, Okay, this is a Tracy podcast. 6 00:00:27,560 --> 00:00:30,080 Speaker 1: I'm probably mostly just gonna sit back and listen, and 7 00:00:30,200 --> 00:00:32,680 Speaker 1: anytime I feel like we're going to have a conversation 8 00:00:33,240 --> 00:00:36,640 Speaker 1: that involves the term delta hedging, which I'm still like 9 00:00:36,760 --> 00:00:39,919 Speaker 1: kind of like having totally like lockdown solid and what 10 00:00:39,960 --> 00:00:41,960 Speaker 1: that means, I'm like, Okay, this is like, this is 11 00:00:41,960 --> 00:00:44,599 Speaker 1: like a Tracy episode. Okay, first of all, that's very 12 00:00:44,600 --> 00:00:47,320 Speaker 1: sweet of you to say. Second of all, I just 13 00:00:47,400 --> 00:00:49,920 Speaker 1: told you that I lost all my notes for this episode, 14 00:00:50,560 --> 00:00:52,880 Speaker 1: So now I feel like the stakes are very high, 15 00:00:53,000 --> 00:00:55,760 Speaker 1: and uh, you know, I might not do as good 16 00:00:55,760 --> 00:00:58,440 Speaker 1: a job as you expect, but yeah, we're gonna be 17 00:00:58,480 --> 00:01:02,440 Speaker 1: diving into delta hedge. But the weird thing is that 18 00:01:02,440 --> 00:01:05,560 Speaker 1: that delta hedging has kind of exploded into the public 19 00:01:06,160 --> 00:01:09,600 Speaker 1: consciousness for I think the first time in a while, 20 00:01:10,040 --> 00:01:12,199 Speaker 1: or at least everyone in the market is talking about 21 00:01:12,200 --> 00:01:17,120 Speaker 1: it because we have this big drama in options. Yeah, 22 00:01:17,160 --> 00:01:19,920 Speaker 1: that's exactly right. So basically, I mean, one of the 23 00:01:19,959 --> 00:01:23,920 Speaker 1: most surprising things, uh, in this crisis period, and we've 24 00:01:23,920 --> 00:01:26,920 Speaker 1: talked about this a few times, is the degree to 25 00:01:27,000 --> 00:01:30,480 Speaker 1: which retail traders have really aggressively jumped into this market, 26 00:01:30,760 --> 00:01:33,840 Speaker 1: timing the market really well, jumping in right at the bottom. 27 00:01:34,160 --> 00:01:36,399 Speaker 1: And we sort of know about the mania. But what's 28 00:01:36,480 --> 00:01:40,280 Speaker 1: interesting too is um sort of the options strategies not 29 00:01:40,480 --> 00:01:43,880 Speaker 1: just sort of like buying Tesla or buying Amazon or 30 00:01:43,880 --> 00:01:48,320 Speaker 1: buying Netflix, but actually like trading aggressively with options, and 31 00:01:48,360 --> 00:01:51,520 Speaker 1: the use of options has all kinds of interesting sort 32 00:01:51,560 --> 00:01:56,040 Speaker 1: of like market structure ramifications. Yeah. Absolutely. And one of 33 00:01:56,080 --> 00:01:58,640 Speaker 1: the big developments that we've discussed on the podcast is 34 00:01:58,720 --> 00:02:01,520 Speaker 1: the rise of Robin hood would and um, you know, 35 00:02:02,080 --> 00:02:06,440 Speaker 1: forums like Wall Street Bets and instead of just buying 36 00:02:06,640 --> 00:02:09,600 Speaker 1: stocks and profiting as the shares go up, a lot 37 00:02:09,680 --> 00:02:14,480 Speaker 1: of people are undertaking equity derivative strategies call options to 38 00:02:14,560 --> 00:02:17,720 Speaker 1: get leverage on their trades, and some of them seem 39 00:02:17,800 --> 00:02:21,280 Speaker 1: to be making big money. But the major question for 40 00:02:21,360 --> 00:02:25,160 Speaker 1: markets right now is whether or not all that options activity, 41 00:02:25,240 --> 00:02:29,600 Speaker 1: that rising options activity, actually has an impact on the 42 00:02:29,720 --> 00:02:33,440 Speaker 1: underlying stock so that's the big question. There's one other 43 00:02:34,200 --> 00:02:37,000 Speaker 1: bit of drama that we haven't mentioned yet, and that 44 00:02:37,200 --> 00:02:40,760 Speaker 1: is soft Bank. So you know, soft Bank is a 45 00:02:40,840 --> 00:02:45,360 Speaker 1: Japanese conglomerate, a big tech investor, and it emerged relatively 46 00:02:45,400 --> 00:02:49,359 Speaker 1: recently that they had been buying call options as well. 47 00:02:49,360 --> 00:02:52,160 Speaker 1: Although I think there are varying reports about what exactly 48 00:02:52,600 --> 00:02:55,960 Speaker 1: they're doing. Some people are describing them as the whale 49 00:02:56,200 --> 00:02:59,320 Speaker 1: in the options market, the implication being that they're moving 50 00:02:59,360 --> 00:03:02,960 Speaker 1: prices in some way. Again, there's a lot of debate 51 00:03:03,120 --> 00:03:06,160 Speaker 1: about how much influence they actually have. We're going to 52 00:03:06,200 --> 00:03:10,320 Speaker 1: be getting into all of that on this episode. Right 53 00:03:10,400 --> 00:03:12,960 Speaker 1: anytime soft Bank is involved with something, there's an added 54 00:03:13,040 --> 00:03:16,160 Speaker 1: level of drama because people love to People love SoftBank drama. 55 00:03:16,200 --> 00:03:18,560 Speaker 1: They love the whole we work thing. So it's like, oh, 56 00:03:18,960 --> 00:03:21,840 Speaker 1: soft Bank is doing the same trade buying a bunch 57 00:03:21,840 --> 00:03:24,000 Speaker 1: of tech stocks. There's a bunch of people on Robin Hood. 58 00:03:24,360 --> 00:03:28,080 Speaker 1: It's just a super juicy story something. So we're gonna 59 00:03:30,600 --> 00:03:33,080 Speaker 1: it's kind of the perfect combat, perfect Twitter fodder. So 60 00:03:33,120 --> 00:03:37,440 Speaker 1: we're gonna we're gonna break down what is actually going on, 61 00:03:37,640 --> 00:03:40,640 Speaker 1: and we are our guest today is our go to 62 00:03:40,920 --> 00:03:45,480 Speaker 1: for all things volatility, all things option trading. We've had 63 00:03:45,560 --> 00:03:49,040 Speaker 1: them on in a couple of times in the past. Um, 64 00:03:49,120 --> 00:03:51,360 Speaker 1: he is Ben Effort, he is the c i O 65 00:03:51,600 --> 00:03:55,360 Speaker 1: at QVR Advisors, and he has a gift for explaining 66 00:03:55,360 --> 00:03:58,240 Speaker 1: this stuff in a playing English. So Ben, thank you 67 00:03:58,320 --> 00:04:01,000 Speaker 1: very much for joining us. What is don't to hedging again? 68 00:04:02,080 --> 00:04:04,920 Speaker 1: Hey Joe? How are you? Guys? Thanks thanks for having 69 00:04:04,960 --> 00:04:08,200 Speaker 1: me on And I'm excited, But seriously, what is it again? 70 00:04:08,560 --> 00:04:12,720 Speaker 1: Don't they hedging? I always forget absolutely, so think of 71 00:04:12,760 --> 00:04:15,400 Speaker 1: it this way, right, So, you know, options are simple 72 00:04:15,440 --> 00:04:20,000 Speaker 1: tools that investors of different kinds used to hedge their 73 00:04:20,040 --> 00:04:24,480 Speaker 1: portfolios or to speculate in different ways. You know, a 74 00:04:24,520 --> 00:04:27,360 Speaker 1: call option, for example, is just a really simple instrument 75 00:04:27,440 --> 00:04:30,240 Speaker 1: that gives the owner of that option, you know, the right, 76 00:04:30,360 --> 00:04:33,080 Speaker 1: but not the obligation, to buy a stock in the 77 00:04:33,080 --> 00:04:38,080 Speaker 1: future at some predetermined price. Right. So, a retail investor 78 00:04:38,120 --> 00:04:40,720 Speaker 1: that thinks Tesla is going up, you know, could buy 79 00:04:40,760 --> 00:04:44,640 Speaker 1: the to the next Friday's two thousands strike Tesla call 80 00:04:44,720 --> 00:04:47,760 Speaker 1: and if Tesla goes up to two hundred, they're going 81 00:04:47,800 --> 00:04:50,400 Speaker 1: to get to buy Tesla at you know, at two thousand, 82 00:04:50,560 --> 00:04:52,839 Speaker 1: and it's going to be worth twenty at that point, 83 00:04:52,839 --> 00:04:54,440 Speaker 1: and they might have only had to pay you know, 84 00:04:55,120 --> 00:04:57,039 Speaker 1: bucks or thirty bucks for that, so that it just 85 00:04:57,080 --> 00:04:59,960 Speaker 1: gives them a very simple way of expressing a directional 86 00:05:00,040 --> 00:05:02,520 Speaker 1: be with limited loss. Not The thing to keep in 87 00:05:02,560 --> 00:05:06,680 Speaker 1: mind is the way that this marketplace works. If that 88 00:05:06,920 --> 00:05:10,560 Speaker 1: if that retail investor goes out and buys that Tesla 89 00:05:10,640 --> 00:05:13,479 Speaker 1: call option, they're buying it from a market maker, And 90 00:05:13,800 --> 00:05:17,280 Speaker 1: maybe that market maker holds onto that position, maybe they 91 00:05:17,279 --> 00:05:19,920 Speaker 1: flip out of it to a volatility arbitrage hedge fund. 92 00:05:19,920 --> 00:05:21,840 Speaker 1: But at the end of the day, the other side 93 00:05:21,880 --> 00:05:26,640 Speaker 1: of that option position, you know, lives with a market 94 00:05:26,680 --> 00:05:29,960 Speaker 1: participant that does not have a directional view on on 95 00:05:30,000 --> 00:05:32,200 Speaker 1: the stock. Right, So the retail investor isn't sort of 96 00:05:32,279 --> 00:05:35,280 Speaker 1: somehow magically pairing off with some you know, in every case, 97 00:05:35,360 --> 00:05:37,760 Speaker 1: with some other retail investor that just has the exact 98 00:05:37,800 --> 00:05:40,400 Speaker 1: opposite view and wants to sell that call. Right. When 99 00:05:40,400 --> 00:05:44,240 Speaker 1: the market maker sells that call option to the retail investor, 100 00:05:44,279 --> 00:05:47,599 Speaker 1: that call option is going to have some sensitivity to 101 00:05:47,839 --> 00:05:50,520 Speaker 1: the price of the stock. If it's out of the money. 102 00:05:50,560 --> 00:05:53,480 Speaker 1: It might be say, you know, per contract, it might 103 00:05:53,480 --> 00:05:57,120 Speaker 1: be as sensitive to to to the stock price. In 104 00:05:57,160 --> 00:06:00,080 Speaker 1: other words, if you know, if a thousand ship or 105 00:06:00,160 --> 00:06:02,800 Speaker 1: is worth of Tesla, trade those call options might have, 106 00:06:03,000 --> 00:06:05,919 Speaker 1: you know, to exposure worth two HU fifty shares. The 107 00:06:05,920 --> 00:06:08,080 Speaker 1: market maker is just going to hedge that exposure right 108 00:06:08,080 --> 00:06:11,480 Speaker 1: away when they do the transaction, right. And so if 109 00:06:11,480 --> 00:06:14,279 Speaker 1: a retail investor comes and buys a bullish option structure 110 00:06:14,320 --> 00:06:17,800 Speaker 1: from a market maker, the market maker does execute that 111 00:06:17,880 --> 00:06:20,560 Speaker 1: trade and then buy some stock on the back of 112 00:06:20,600 --> 00:06:23,560 Speaker 1: that to hedge out the directionality of that of that exposure. Right. 113 00:06:23,560 --> 00:06:25,560 Speaker 1: The market maker's job is to you know, buy on 114 00:06:25,600 --> 00:06:27,680 Speaker 1: the on the bid and sell on the offer and 115 00:06:27,760 --> 00:06:30,839 Speaker 1: manage down their inventory and take as little risk as possible. 116 00:06:31,160 --> 00:06:34,320 Speaker 1: And so that's the the you know, the delta hedging um, 117 00:06:34,360 --> 00:06:37,040 Speaker 1: you know, just first order impact. And then the second 118 00:06:37,040 --> 00:06:40,159 Speaker 1: thing to think about is that, you know, option delta 119 00:06:40,600 --> 00:06:45,479 Speaker 1: or option exposure to the underlying stock price is itself dynamic, 120 00:06:45,600 --> 00:06:48,440 Speaker 1: and it depends on where the stock price is relative 121 00:06:48,520 --> 00:06:50,839 Speaker 1: to the strike. It depends on the time to maturity, 122 00:06:51,240 --> 00:06:53,880 Speaker 1: you know, especially for very short term options. You know, 123 00:06:54,040 --> 00:06:57,000 Speaker 1: what will happen if in that example we were talking about, 124 00:06:57,040 --> 00:06:59,640 Speaker 1: if Tesla, you know, rallies you know, six or seven 125 00:06:59,680 --> 00:07:02,200 Speaker 1: percent the next day, which in August it was doing 126 00:07:02,320 --> 00:07:05,760 Speaker 1: you know, just on your average day, right, um, that 127 00:07:05,760 --> 00:07:08,359 Speaker 1: that exposure might of that option might go from a 128 00:07:08,920 --> 00:07:13,000 Speaker 1: delta or you know, sensitivity to the stock price to 129 00:07:14,880 --> 00:07:17,760 Speaker 1: and then as it gets closer to the strike And 130 00:07:17,840 --> 00:07:19,960 Speaker 1: what's going to happen then is the market maker who's 131 00:07:20,000 --> 00:07:21,600 Speaker 1: holding the other side of that position is going to 132 00:07:21,640 --> 00:07:23,760 Speaker 1: need to increase the size of their heads. They're gonna 133 00:07:23,800 --> 00:07:26,960 Speaker 1: go need to buy more Tesla stock to bring their 134 00:07:27,000 --> 00:07:31,480 Speaker 1: hedge up to them. And in doing so, you know 135 00:07:31,560 --> 00:07:34,600 Speaker 1: that they'll end up having bought you know, a vast 136 00:07:34,760 --> 00:07:38,240 Speaker 1: multiple as much dollars of Tesla stock as that investor 137 00:07:38,320 --> 00:07:40,560 Speaker 1: will have spent on the premium of the option could 138 00:07:40,600 --> 00:07:42,560 Speaker 1: be you know, in this example, it could be fifty 139 00:07:42,600 --> 00:07:46,160 Speaker 1: times as much, right, so creating a very large amount 140 00:07:46,200 --> 00:07:48,760 Speaker 1: of leverage for the end you know retail investor that's 141 00:07:48,760 --> 00:07:51,120 Speaker 1: doing the strain a right. I'm going to ask you 142 00:07:51,160 --> 00:07:53,000 Speaker 1: that again in a year, the next time we have 143 00:07:53,080 --> 00:07:55,080 Speaker 1: you on for a different topic. But that was fantastic, 144 00:07:55,360 --> 00:07:58,000 Speaker 1: So I mean, on that note, this idea of the 145 00:07:58,360 --> 00:08:04,040 Speaker 1: shorter term options, can you maybe describe or explain why 146 00:08:04,160 --> 00:08:08,400 Speaker 1: they seem to have become very popular recently and and 147 00:08:08,440 --> 00:08:10,800 Speaker 1: maybe give us some color on on what people are 148 00:08:10,840 --> 00:08:13,720 Speaker 1: actually doing in that market, like how big are the 149 00:08:13,840 --> 00:08:17,440 Speaker 1: volumes at the moment, and why has everyone suddenly decided 150 00:08:17,520 --> 00:08:21,040 Speaker 1: they want to tread short term calls? Sure? Absolutely, you know, 151 00:08:21,080 --> 00:08:25,600 Speaker 1: so this has really been an evolving trend that, um, 152 00:08:25,640 --> 00:08:29,280 Speaker 1: that the popularity of short term options. You know, this 153 00:08:29,360 --> 00:08:31,360 Speaker 1: is a relatively new thing in market. So if you 154 00:08:31,400 --> 00:08:34,800 Speaker 1: look back, you know, five or seven years ago, a 155 00:08:34,840 --> 00:08:37,280 Speaker 1: short term option would have been considered saying you know, 156 00:08:37,360 --> 00:08:39,920 Speaker 1: one month option and there was a little SMP weeklies 157 00:08:39,960 --> 00:08:42,280 Speaker 1: we're starting to be listed. You know, most single lanes 158 00:08:42,360 --> 00:08:45,559 Speaker 1: didn't have them. Um, you know, very short term options 159 00:08:45,559 --> 00:08:49,720 Speaker 1: would have been considered you know, very path dependent, very risky. Uh. 160 00:08:49,840 --> 00:08:53,280 Speaker 1: And you've just seen a steady, steady, rapid growth in 161 00:08:53,640 --> 00:08:56,400 Speaker 1: you know, their utilization in the listing of those options 162 00:08:56,400 --> 00:08:59,480 Speaker 1: on exchanges in single lanes and index and then the 163 00:08:59,640 --> 00:09:03,360 Speaker 1: you know, relative fractions of volumes traded in those very 164 00:09:03,360 --> 00:09:06,240 Speaker 1: short term options. So like in the SMP for example, 165 00:09:06,880 --> 00:09:08,880 Speaker 1: you know, over the last six months, and I think 166 00:09:08,920 --> 00:09:10,800 Speaker 1: that you know, the more recent data is, you know, 167 00:09:10,880 --> 00:09:14,040 Speaker 1: some very large percentage of the daily volume in SMP 168 00:09:14,200 --> 00:09:17,600 Speaker 1: options is in the you know couple of days. UM, 169 00:09:17,640 --> 00:09:20,480 Speaker 1: you know, expery is happening that day or the next day, 170 00:09:20,520 --> 00:09:25,160 Speaker 1: like or and that A similar pattern has emerged in 171 00:09:26,040 --> 00:09:30,839 Speaker 1: especially in tech companies, mega cap tech companies now in 172 00:09:30,960 --> 00:09:33,679 Speaker 1: terms of you know, the data, what we see, right, 173 00:09:33,720 --> 00:09:35,760 Speaker 1: So first of all, you all of this is you 174 00:09:35,800 --> 00:09:38,360 Speaker 1: know O C C. This is all exchange traded, you know, 175 00:09:38,480 --> 00:09:41,920 Speaker 1: data reported by the OCC and you know, you can 176 00:09:41,960 --> 00:09:46,000 Speaker 1: look at different individual transactions that happen. But so first 177 00:09:46,000 --> 00:09:52,199 Speaker 1: of all, UM, small trader buying bullish call options UM 178 00:09:52,440 --> 00:09:58,800 Speaker 1: have so under fifty lot positions. These those volumes had 179 00:09:58,880 --> 00:10:03,800 Speaker 1: lived let's say, previously a high rate on a trailing 180 00:10:03,840 --> 00:10:06,680 Speaker 1: one month basis in you know, any time in history 181 00:10:06,720 --> 00:10:10,560 Speaker 1: up until would have been let's say a hundred billion 182 00:10:10,640 --> 00:10:16,080 Speaker 1: dollars of notional trading across across single name options. UM, 183 00:10:16,200 --> 00:10:19,880 Speaker 1: it's reached five hundred billion dollars today. It sort of 184 00:10:19,920 --> 00:10:23,760 Speaker 1: went vertical, you know, rocketship blast off starting actually in 185 00:10:23,880 --> 00:10:27,520 Speaker 1: late twenty nine, so it preceded you know, COVID really 186 00:10:27,559 --> 00:10:30,600 Speaker 1: I think amplified this trend, but the trend started to 187 00:10:30,800 --> 00:10:34,040 Speaker 1: take off before that. UM, And I think it's it's 188 00:10:34,040 --> 00:10:40,520 Speaker 1: partly associated with the elimination of brokera of brokerage commissions 189 00:10:40,559 --> 00:10:43,760 Speaker 1: across the majority of the large retail platforms, and that 190 00:10:43,960 --> 00:10:45,480 Speaker 1: I think, you know, you're gonna have to give Robin 191 00:10:45,520 --> 00:10:48,000 Speaker 1: Hood some credit for for you know, pushing the market 192 00:10:48,000 --> 00:10:50,760 Speaker 1: in that direction. Um uh. And you know you can 193 00:10:50,800 --> 00:10:54,080 Speaker 1: get into nuances of are the trading costs for retail 194 00:10:54,120 --> 00:10:56,640 Speaker 1: investors and options actually any lower? I mean, I think 195 00:10:56,640 --> 00:10:58,559 Speaker 1: most people would argue they're not right. It's just an 196 00:10:58,559 --> 00:11:02,200 Speaker 1: optical thing about oh, we're not charging you. Um But anyway, 197 00:11:02,200 --> 00:11:04,560 Speaker 1: I think that's a separate discussion to some extent, you've 198 00:11:04,559 --> 00:11:07,480 Speaker 1: seen this huge explosion. You know, the chart just looks 199 00:11:07,480 --> 00:11:13,160 Speaker 1: insane of again bullish call option buying by by small investors. 200 00:11:13,720 --> 00:11:15,679 Speaker 1: The other thing that you see, you know, you can 201 00:11:15,720 --> 00:11:18,720 Speaker 1: look at the again, it's it's really happening in call options, 202 00:11:18,800 --> 00:11:22,280 Speaker 1: not in put options. So you know, small trader accounts 203 00:11:22,360 --> 00:11:25,200 Speaker 1: are you know, trading somewhat more put options than they 204 00:11:25,280 --> 00:11:27,800 Speaker 1: used to, but it's very modest, whereas you see this 205 00:11:27,960 --> 00:11:31,560 Speaker 1: just incredible parabolic growth on the on the call option side. 206 00:11:32,480 --> 00:11:36,760 Speaker 1: The other thing to note is that especially the last 207 00:11:36,760 --> 00:11:40,240 Speaker 1: few months, this is flow is very heavily concentrated in 208 00:11:40,720 --> 00:11:44,199 Speaker 1: mega cap tech. Um, there have been a few different 209 00:11:44,360 --> 00:11:47,520 Speaker 1: adventures that that retail has had over the last six months. 210 00:11:47,520 --> 00:11:49,440 Speaker 1: I mean, if you remember in the wake of COVID, 211 00:11:49,480 --> 00:11:53,880 Speaker 1: actually there were some large position taking in bankrupt companies 212 00:11:53,920 --> 00:11:56,280 Speaker 1: and in cruise ships and airlines and some of the 213 00:11:56,320 --> 00:11:59,720 Speaker 1: most like distressed value value names. But really for the 214 00:11:59,760 --> 00:12:02,400 Speaker 1: last three or four months, that's been very heavily a 215 00:12:02,440 --> 00:12:08,440 Speaker 1: story about mega cap tech. So if you look at Facebook, Amazon, Apple, Netflix, Google, Microsoft, Tesla, 216 00:12:09,120 --> 00:12:12,079 Speaker 1: you know, rolling one month average daily single stock call 217 00:12:12,200 --> 00:12:16,600 Speaker 1: volumes are are around two hundred billion dollars a day um, 218 00:12:16,640 --> 00:12:18,560 Speaker 1: which you know would have that would have number would 219 00:12:18,559 --> 00:12:20,960 Speaker 1: have been like a hundred would have been like sorry, 220 00:12:21,000 --> 00:12:24,000 Speaker 1: like fifteen million dollars, you know, twenty million dollars previous 221 00:12:24,000 --> 00:12:43,520 Speaker 1: before in in over a long history of time. So 222 00:12:44,160 --> 00:12:46,760 Speaker 1: I'm looking. You sent over some charts and as you mentioned, 223 00:12:46,840 --> 00:12:49,920 Speaker 1: you know, we sort of associate this mania with the 224 00:12:50,000 --> 00:12:52,680 Speaker 1: COVID and sort of post COVID era, but it really 225 00:12:52,679 --> 00:12:54,240 Speaker 1: has been going on for a while. And you could 226 00:12:54,240 --> 00:12:57,920 Speaker 1: see a really pick up in and it was the 227 00:12:57,960 --> 00:13:01,280 Speaker 1: cover of that sort of infamous in this week story 228 00:13:01,360 --> 00:13:04,880 Speaker 1: that are departed. Colleague Luke Cower wrote like this was 229 00:13:04,960 --> 00:13:08,600 Speaker 1: like the Wall Street bet strategy. Essentially, this idea like 230 00:13:09,520 --> 00:13:12,600 Speaker 1: these little you know, little retail traders thought they sort 231 00:13:12,600 --> 00:13:16,360 Speaker 1: of created a perpetual money machine by these call options 232 00:13:16,760 --> 00:13:21,680 Speaker 1: bullish force the brokers to delta hedge take positions with 233 00:13:21,760 --> 00:13:24,360 Speaker 1: this idea that you could just sort of like snowball 234 00:13:24,440 --> 00:13:28,240 Speaker 1: it into more money. Yeah, no, that's right. I mean 235 00:13:28,240 --> 00:13:30,840 Speaker 1: that was some some really great reporting that Luke did. 236 00:13:31,120 --> 00:13:33,840 Speaker 1: You know. It's an interesting community. I think the red 237 00:13:33,840 --> 00:13:37,040 Speaker 1: of Wall Street bets community obviously is it's a microcosm 238 00:13:37,080 --> 00:13:41,079 Speaker 1: of the broader retail investment community. Probably robin Hood itself 239 00:13:41,559 --> 00:13:44,200 Speaker 1: is also a microcosm because we talked about robin Hood 240 00:13:44,559 --> 00:13:48,200 Speaker 1: is kind of like band aid or Kleenex, but it 241 00:13:48,360 --> 00:13:51,240 Speaker 1: represents in the sort of lexicon what a lot of 242 00:13:51,240 --> 00:13:53,079 Speaker 1: people are doing on a lot of different plants. Yeah. 243 00:13:53,120 --> 00:13:54,600 Speaker 1: I think that's exactly right, And I think that's an 244 00:13:54,600 --> 00:13:57,520 Speaker 1: important point. You'll hear a lot of people, you know, 245 00:13:57,600 --> 00:14:00,640 Speaker 1: who aren't necessarily that closed option markets be sort dismissive 246 00:14:00,679 --> 00:14:03,480 Speaker 1: that retail activity could be large, it could be impactful 247 00:14:03,520 --> 00:14:05,160 Speaker 1: when they say, look, robin hood is not that big. 248 00:14:05,160 --> 00:14:06,600 Speaker 1: But yeah, I think a lot of times when people 249 00:14:06,640 --> 00:14:10,680 Speaker 1: are are casually talking about the types of things that 250 00:14:10,760 --> 00:14:13,040 Speaker 1: Robin Hood is doing. Um, you know, you have to 251 00:14:13,080 --> 00:14:15,520 Speaker 1: look at this kind of data across all of the 252 00:14:15,559 --> 00:14:18,720 Speaker 1: major retail brokerages and you see exactly the same pattern everywhere. 253 00:14:18,760 --> 00:14:21,360 Speaker 1: Sort of these huge explosive growth at Schwab, but t 254 00:14:21,480 --> 00:14:24,560 Speaker 1: D at interactive brokers. This is not it's not purely 255 00:14:24,600 --> 00:14:27,000 Speaker 1: a Robin Hood phenomenon. Robin Hood's just the most colorful. 256 00:14:27,040 --> 00:14:28,680 Speaker 1: I mean, it makes the news the most right and 257 00:14:28,680 --> 00:14:30,600 Speaker 1: the m to your point, you know, the Redditt Wall 258 00:14:30,640 --> 00:14:33,520 Speaker 1: Street bets community. You know, this is a it's an 259 00:14:33,520 --> 00:14:37,239 Speaker 1: odd subculture, right, sort of in an Internet like subculture 260 00:14:37,280 --> 00:14:38,800 Speaker 1: that I think had a lot of has a lot 261 00:14:38,920 --> 00:14:41,720 Speaker 1: in common with the crypto community and probably shares a 262 00:14:41,800 --> 00:14:43,840 Speaker 1: lot of the same you know, people who were who 263 00:14:43,840 --> 00:14:46,600 Speaker 1: were very active in crypto like in two seventeen. Right, 264 00:14:47,480 --> 00:14:49,840 Speaker 1: it's a very you know, lewd talking crew on the 265 00:14:49,920 --> 00:14:51,680 Speaker 1: on the discord. You can go and you know, sit 266 00:14:51,720 --> 00:14:53,640 Speaker 1: in the discord and watch what these guys are talking 267 00:14:53,640 --> 00:14:56,160 Speaker 1: about and what they're doing, and you know, to to 268 00:14:56,280 --> 00:14:59,800 Speaker 1: be to be clear, you know, there are you know, 269 00:14:59,840 --> 00:15:02,360 Speaker 1: he influencers within that community that will say, all right, 270 00:15:02,440 --> 00:15:04,760 Speaker 1: we're you know this. You know today we're buying the 271 00:15:04,760 --> 00:15:09,400 Speaker 1: Teslas for next Friday, and like, you know, the volumes 272 00:15:09,440 --> 00:15:12,840 Speaker 1: that will print are huge, right, Um, and it's not 273 00:15:12,880 --> 00:15:15,080 Speaker 1: necessarily from any one account, but there's a couple of 274 00:15:15,120 --> 00:15:17,280 Speaker 1: million members in that chat and if you know, if 275 00:15:17,320 --> 00:15:19,520 Speaker 1: if ten percent of them go and buy a couple 276 00:15:19,560 --> 00:15:23,080 Speaker 1: of contracts of Tesla, that volume is astronomical, right, and 277 00:15:23,320 --> 00:15:26,320 Speaker 1: the market man, you better believe that the most sophisticated 278 00:15:26,360 --> 00:15:28,840 Speaker 1: option players in the world and the Susquehannas instead of 279 00:15:28,840 --> 00:15:32,360 Speaker 1: all securities, are extremely focused on this flow and then 280 00:15:32,360 --> 00:15:34,960 Speaker 1: predicting it in real time and all the technology that 281 00:15:34,960 --> 00:15:38,120 Speaker 1: you would associate with that. Right, it's it's monster monster flow. 282 00:15:38,600 --> 00:15:40,680 Speaker 1: That's really interesting. And to your point, these guys know 283 00:15:40,800 --> 00:15:44,640 Speaker 1: about this effect. It's it's really fascinating, right, But Joe 284 00:15:44,720 --> 00:15:46,640 Speaker 1: Joe kind of mentioned it as Luke said, you know, 285 00:15:46,720 --> 00:15:49,280 Speaker 1: these guys will will be the first ones to say, look, 286 00:15:49,280 --> 00:15:52,320 Speaker 1: if we buy tons of short dated weekly calls, here's 287 00:15:52,320 --> 00:15:55,200 Speaker 1: how gamma works. Um, here's how we put market makers 288 00:15:55,200 --> 00:15:58,440 Speaker 1: into this negative convexity situation where if stocks are trending higher, 289 00:15:58,440 --> 00:16:00,960 Speaker 1: they're forced to buy and like that is that benefit 290 00:16:01,000 --> 00:16:03,640 Speaker 1: sence they get that you've got to think that there 291 00:16:03,720 --> 00:16:07,320 Speaker 1: must be some like regulators from the SEC also keeping 292 00:16:07,360 --> 00:16:11,560 Speaker 1: an eye on Wall Street bets at the moment. Although yeah, exactly, 293 00:16:12,160 --> 00:16:15,280 Speaker 1: but that's kind of a separate topic. So okay, here's 294 00:16:15,320 --> 00:16:18,760 Speaker 1: the big the big question. Then, what is your sense 295 00:16:19,640 --> 00:16:23,520 Speaker 1: of how much impact these uh, these traders are actually 296 00:16:23,560 --> 00:16:26,960 Speaker 1: having on the overall market and especially the mega cap 297 00:16:27,080 --> 00:16:31,760 Speaker 1: text talks that have been in focus recently. Yeah, absolutely so, 298 00:16:31,800 --> 00:16:33,480 Speaker 1: I think the way you have to think about this 299 00:16:33,560 --> 00:16:36,920 Speaker 1: as this kind of option positioning UM, what it does 300 00:16:37,160 --> 00:16:43,360 Speaker 1: is it it creates feedback mechanisms for trend amplification in markets. Right, 301 00:16:43,720 --> 00:16:46,520 Speaker 1: So it's not I think the argument is not that 302 00:16:47,200 --> 00:16:52,400 Speaker 1: UM necessarily even across you know, the option trading community 303 00:16:52,480 --> 00:16:56,080 Speaker 1: within retail that you know, there's the amount of dollars 304 00:16:56,080 --> 00:16:58,840 Speaker 1: of stock exposure that they're buying directly is like, you know, 305 00:16:58,920 --> 00:17:01,120 Speaker 1: so large that they're pushing everything up, right, But there's 306 00:17:01,120 --> 00:17:03,720 Speaker 1: a general you know, there's been a general move back 307 00:17:03,720 --> 00:17:07,119 Speaker 1: into tech across both institutional and retail. Right, it's certainly 308 00:17:07,119 --> 00:17:11,680 Speaker 1: not limited to retail and the h and the nature 309 00:17:11,920 --> 00:17:14,960 Speaker 1: of very heavy buying of short term options by you know, 310 00:17:15,040 --> 00:17:18,240 Speaker 1: by retail and big size you know, creates an amplification 311 00:17:18,280 --> 00:17:20,320 Speaker 1: mechanism in the direction of a trend. And that could 312 00:17:20,320 --> 00:17:23,879 Speaker 1: be upboard down, right, because the important thing about you 313 00:17:23,880 --> 00:17:26,080 Speaker 1: know about delta hedgeting, and you know, to to Joe's 314 00:17:26,160 --> 00:17:30,199 Speaker 1: question again, let's take that example of those um of 315 00:17:30,240 --> 00:17:33,080 Speaker 1: those called Tesla call options that had been heavily bought, 316 00:17:33,119 --> 00:17:37,000 Speaker 1: and that that the delta started out and then as 317 00:17:37,080 --> 00:17:41,480 Speaker 1: Tesla rallied, that delta went to f into seventy, forcing 318 00:17:41,480 --> 00:17:43,520 Speaker 1: the market maker on the other side to buy stock 319 00:17:43,560 --> 00:17:46,200 Speaker 1: and buy stock and buy stock and amplifying that trend. 320 00:17:46,840 --> 00:17:50,280 Speaker 1: You know what happens if then the next day, you know, 321 00:17:50,359 --> 00:17:53,280 Speaker 1: there's more sellers than buyers for whatever reason, rights, some 322 00:17:53,400 --> 00:17:56,560 Speaker 1: large institutions are selling or whatever, right, and Tesla comes 323 00:17:56,640 --> 00:17:59,719 Speaker 1: off five or ten percent. These are very short term options, right, 324 00:17:59,760 --> 00:18:03,480 Speaker 1: And suddenly the delta of those options goes back to 325 00:18:03,520 --> 00:18:06,200 Speaker 1: fifty and back to and dealers have to sell out 326 00:18:06,240 --> 00:18:09,520 Speaker 1: all of those hedges that they had, right. So the 327 00:18:09,560 --> 00:18:12,600 Speaker 1: impact is not just a direct bullish impact, It's an 328 00:18:12,600 --> 00:18:16,720 Speaker 1: impact that amplifies price action in either direction. Right. And 329 00:18:16,760 --> 00:18:18,320 Speaker 1: I think you know you saw that at work this 330 00:18:18,520 --> 00:18:20,760 Speaker 1: last you know, this last week right where you had 331 00:18:21,320 --> 00:18:24,200 Speaker 1: the rally kind of peter out. You saw very heavy 332 00:18:24,200 --> 00:18:27,360 Speaker 1: institutional selling coming in on Wednesday, you know, the last 333 00:18:27,440 --> 00:18:29,320 Speaker 1: day of the rally, and then Thursday, the first day 334 00:18:29,320 --> 00:18:30,920 Speaker 1: of the big sell off, and you know, then you 335 00:18:30,960 --> 00:18:33,920 Speaker 1: saw the most wicked reversals in you know, the most 336 00:18:33,920 --> 00:18:37,000 Speaker 1: popular megacap tech names that where that really were amplified 337 00:18:37,000 --> 00:18:39,600 Speaker 1: throughout the day and into the clothes. So you know, 338 00:18:39,720 --> 00:18:42,320 Speaker 1: it's very hard obviously to to give some kind of 339 00:18:42,320 --> 00:18:45,880 Speaker 1: person you know, x percentage of the you know, tech 340 00:18:46,000 --> 00:18:48,840 Speaker 1: rally from the state to the state was somehow caused 341 00:18:48,880 --> 00:18:51,200 Speaker 1: by retail option buying. I think that's an impossible sort 342 00:18:51,240 --> 00:18:53,679 Speaker 1: of question. But what I think is very clear is 343 00:18:53,720 --> 00:18:56,840 Speaker 1: there's very is there's you know, strong near term momentum 344 00:18:56,840 --> 00:19:00,720 Speaker 1: trend effects that amplify that rally um that come from 345 00:19:00,720 --> 00:19:04,479 Speaker 1: from retail positioning and options. So let's get into the 346 00:19:04,520 --> 00:19:08,720 Speaker 1: soft Bank angle of the story, because actually Bloomberg reported 347 00:19:08,840 --> 00:19:11,760 Speaker 1: in early August that soft Bank plan to participate in 348 00:19:11,840 --> 00:19:16,200 Speaker 1: public markets, particularly big tech companies. Then in early September, 349 00:19:16,840 --> 00:19:19,480 Speaker 1: the Ft had a story and they said soft Bank 350 00:19:19,680 --> 00:19:23,240 Speaker 1: is the Nazdack whale. So how much of a whale 351 00:19:23,320 --> 00:19:26,879 Speaker 1: are they? And put into perspective, how much they're doing 352 00:19:27,440 --> 00:19:30,800 Speaker 1: versus all this retail money and are they sort of 353 00:19:30,880 --> 00:19:33,639 Speaker 1: leading the charge? Is it a drop of the bucket, Like, 354 00:19:34,119 --> 00:19:37,399 Speaker 1: how do they fit in in your view overall? Sure? 355 00:19:37,600 --> 00:19:39,800 Speaker 1: So you know, to your point, everybody likes to talk 356 00:19:39,800 --> 00:19:42,560 Speaker 1: about SoftBank because you know it's such a colorful company 357 00:19:42,600 --> 00:19:45,960 Speaker 1: and you know the personalities involved are are very big 358 00:19:46,000 --> 00:19:48,159 Speaker 1: in the wee work story. I think we have to 359 00:19:48,200 --> 00:19:51,280 Speaker 1: put this in perspective. Right, So, so, first of all, um, 360 00:19:51,280 --> 00:19:54,560 Speaker 1: I think Bloomberg reported in earlier maybe it was August 361 00:19:54,560 --> 00:19:57,119 Speaker 1: tenth or eleventh, about some of the equity positions that 362 00:19:57,200 --> 00:20:00,560 Speaker 1: SoftBank had been building in mega cap techniques. I think 363 00:20:00,600 --> 00:20:04,919 Speaker 1: those were reported at around ten billion dollars order of magnitude. Right, 364 00:20:05,320 --> 00:20:09,000 Speaker 1: Buying ten billion dollars of stock in the biggest, most 365 00:20:09,040 --> 00:20:11,960 Speaker 1: liquid megacap tech companies in the world that have trillions 366 00:20:11,960 --> 00:20:14,560 Speaker 1: of dollars of market cap over two months is zero, 367 00:20:14,880 --> 00:20:18,639 Speaker 1: full stop, Right, has no impact on any That's a 368 00:20:18,720 --> 00:20:22,000 Speaker 1: tiny position from the perspective, not not for own single institution, 369 00:20:22,040 --> 00:20:25,040 Speaker 1: but a tiny tiny from the perspective of volumes or 370 00:20:25,480 --> 00:20:28,120 Speaker 1: market caps. Right, no, no impact. You know, a lot 371 00:20:28,160 --> 00:20:32,800 Speaker 1: of the later activity that became interesting. Right, So you know, 372 00:20:32,840 --> 00:20:36,840 Speaker 1: option market makers and option market participants have been following, 373 00:20:37,440 --> 00:20:41,280 Speaker 1: you know, this kind of new, interesting, relatively large flow 374 00:20:41,400 --> 00:20:45,480 Speaker 1: that started in early August in UM call spread buying 375 00:20:45,920 --> 00:20:49,520 Speaker 1: for equity replacement purposes UM. And you know, just to 376 00:20:49,560 --> 00:20:51,640 Speaker 1: give some example, and again, this is all people kind 377 00:20:51,640 --> 00:20:54,480 Speaker 1: of have strange ideas about, like how do you see 378 00:20:54,520 --> 00:20:56,080 Speaker 1: this happening? Or how do you never this is all. 379 00:20:56,119 --> 00:20:59,640 Speaker 1: This is all exchange traded securities, you know, against large institutions, 380 00:20:59,720 --> 00:21:03,080 Speaker 1: quote banks execute trades. Everybody hears about it in real time. 381 00:21:03,119 --> 00:21:05,320 Speaker 1: Not who the sources, right, not that it's soft bank, 382 00:21:05,400 --> 00:21:06,679 Speaker 1: but you and then you see the trades go up 383 00:21:06,680 --> 00:21:09,199 Speaker 1: on exchange, you know. But these were large trades. So 384 00:21:09,280 --> 00:21:12,040 Speaker 1: like on August fifth, you started to see for example, 385 00:21:12,480 --> 00:21:17,080 Speaker 1: you know Facebook November five call spread traded and you know, 386 00:21:17,119 --> 00:21:19,359 Speaker 1: thirty five thousand lots, which is pretty big. And you 387 00:21:19,400 --> 00:21:23,359 Speaker 1: know Microsoft call spread webb seventy five times, right, So 388 00:21:23,359 --> 00:21:25,600 Speaker 1: everybody's gonna talk about this and say, oh, that's interesting, 389 00:21:25,640 --> 00:21:29,160 Speaker 1: what's going on. These trades were executed delta neutral, which 390 00:21:29,200 --> 00:21:32,400 Speaker 1: means that the client was buying a call spread at 391 00:21:32,400 --> 00:21:34,000 Speaker 1: the time. This would have been a you know, three 392 00:21:34,000 --> 00:21:36,960 Speaker 1: month or so call spread, and it was three and 393 00:21:36,960 --> 00:21:40,600 Speaker 1: a half months and executed versus selling stock, so with 394 00:21:40,760 --> 00:21:43,560 Speaker 1: no net directional impact on the market. And this was 395 00:21:43,800 --> 00:21:47,040 Speaker 1: an equity replacement trade, so reducing in a long equity 396 00:21:47,080 --> 00:21:50,160 Speaker 1: position and replacing it with some options and in particular 397 00:21:50,200 --> 00:21:53,320 Speaker 1: with some call spreads. Now this is so first of all, 398 00:21:53,400 --> 00:21:55,760 Speaker 1: this is a three month call spread trade. A couple 399 00:21:55,800 --> 00:21:57,359 Speaker 1: of three month call spread trades. I gave you an 400 00:21:57,359 --> 00:22:01,960 Speaker 1: example of, right, So three month all spreads. How you know, 401 00:22:02,000 --> 00:22:05,320 Speaker 1: if you want to think about how much convexity or 402 00:22:05,359 --> 00:22:09,359 Speaker 1: how much gamma that induces this kind of dynamic delta 403 00:22:09,400 --> 00:22:12,240 Speaker 1: hedging the impact that we were talking about. Does a 404 00:22:12,320 --> 00:22:15,119 Speaker 1: three month call spread trade have you know, compared to 405 00:22:15,200 --> 00:22:18,720 Speaker 1: like a one week a little bit upside call for example, 406 00:22:19,240 --> 00:22:22,480 Speaker 1: you know, it would be again depending on the details, 407 00:22:22,480 --> 00:22:24,879 Speaker 1: it could be a hundred times less per dollar of 408 00:22:24,920 --> 00:22:27,640 Speaker 1: notional look, or it could be two hundred times less. Right, 409 00:22:27,680 --> 00:22:33,040 Speaker 1: So a three month call spread is not a convex security, 410 00:22:33,080 --> 00:22:35,840 Speaker 1: and as markets rally, it loses what little convexity that 411 00:22:35,880 --> 00:22:38,840 Speaker 1: it has very quickly. Right, This is just the objective 412 00:22:38,840 --> 00:22:40,960 Speaker 1: of this kind of trade. You know, from the end 413 00:22:41,000 --> 00:22:43,600 Speaker 1: client's perspective, who already owns the stock. This is just 414 00:22:43,640 --> 00:22:46,280 Speaker 1: a risk reduction trade, right where they're taking some stock 415 00:22:46,320 --> 00:22:48,840 Speaker 1: off of the table, they're replacing it within an option 416 00:22:48,880 --> 00:22:52,040 Speaker 1: structure that's maybe worth three or four percent of notional 417 00:22:52,240 --> 00:22:54,560 Speaker 1: where if the world falls apart and these stocks go 418 00:22:54,600 --> 00:22:56,400 Speaker 1: down at ton, they only lose that three or four 419 00:22:56,440 --> 00:22:59,440 Speaker 1: percent instead of losing twenty percent or thirty percent on 420 00:22:59,560 --> 00:23:04,960 Speaker 1: the stock. Right, So this is like very normal, very boring, 421 00:23:05,320 --> 00:23:08,320 Speaker 1: except you know, decent sized, which is the only reason 422 00:23:08,320 --> 00:23:10,800 Speaker 1: that options people were talking about them. Um, you know, 423 00:23:10,840 --> 00:23:13,920 Speaker 1: transactions in the market. No, you know that don't have 424 00:23:14,119 --> 00:23:16,840 Speaker 1: any of the types of impacts that we were talking 425 00:23:16,880 --> 00:23:19,840 Speaker 1: about with respect to to Gamma. You know, they do 426 00:23:19,920 --> 00:23:22,760 Speaker 1: have some their longer term they have some Vega exposure 427 00:23:22,840 --> 00:23:27,520 Speaker 1: or exposure to imply volatility, and those exposures got decent sized. Um. 428 00:23:27,560 --> 00:23:30,119 Speaker 1: And you know, there's some argument that these that trades 429 00:23:30,280 --> 00:23:34,159 Speaker 1: like this contributed to some of the market up but 430 00:23:34,320 --> 00:23:37,760 Speaker 1: implied volatility up dynamics that we saw in late August, 431 00:23:37,760 --> 00:23:39,280 Speaker 1: and you know, you can you can argue about that, 432 00:23:39,400 --> 00:23:42,239 Speaker 1: but I think there's there's absolutely no case that there 433 00:23:42,280 --> 00:23:46,680 Speaker 1: would have been any meaningful impact on stock prices or 434 00:23:46,720 --> 00:23:49,280 Speaker 1: on you know, acceleration of stock price moves from this 435 00:23:49,359 --> 00:23:51,240 Speaker 1: kind of flow, you know, and later we learned that 436 00:23:51,400 --> 00:23:53,480 Speaker 1: you know, soft Bank was probably involved in some of this. 437 00:23:53,640 --> 00:23:56,000 Speaker 1: There may have been some other copycat flow. Um. But 438 00:23:56,040 --> 00:23:59,000 Speaker 1: again I think this was you know, way overblown in 439 00:23:59,119 --> 00:24:02,480 Speaker 1: terms of being impactful with respect to you know, then 440 00:24:02,520 --> 00:24:19,400 Speaker 1: as back. Okay, so because they're trading three month call spreads, 441 00:24:19,520 --> 00:24:22,399 Speaker 1: it doesn't have the same effect on markets as the 442 00:24:22,480 --> 00:24:26,360 Speaker 1: short term call trading does, I guess my question. And 443 00:24:26,720 --> 00:24:31,040 Speaker 1: also you describe the call spread strategy as basically risk 444 00:24:31,240 --> 00:24:35,560 Speaker 1: mitigation for their tech bets. But I guess, could I 445 00:24:35,600 --> 00:24:39,639 Speaker 1: just ask, how weird is it that soft Bank, you know, 446 00:24:39,760 --> 00:24:43,720 Speaker 1: this big tech investor that normally does this sort of 447 00:24:43,960 --> 00:24:47,400 Speaker 1: venture capital like business. How weird is it that they're 448 00:24:47,440 --> 00:24:51,520 Speaker 1: just investing in the public markets like this, And who's 449 00:24:51,600 --> 00:24:54,200 Speaker 1: doing who do you think is like in charge of 450 00:24:54,240 --> 00:24:59,920 Speaker 1: their overall risk strategy on these type of trades. I mean, 451 00:25:00,000 --> 00:25:02,800 Speaker 1: it's a it's certainly a bit unusual from from their 452 00:25:02,960 --> 00:25:06,119 Speaker 1: historical perspective, But I think soft Bank also is a 453 00:25:06,160 --> 00:25:08,600 Speaker 1: bit of an enigma, and you know, tend tends to 454 00:25:08,680 --> 00:25:12,280 Speaker 1: do new interesting things that you know, surprise people and 455 00:25:12,560 --> 00:25:16,000 Speaker 1: get people excited along a variety of dimensions. You know, 456 00:25:16,080 --> 00:25:18,840 Speaker 1: they sort of tried to play this down as sort 457 00:25:18,840 --> 00:25:21,399 Speaker 1: of liquid treasury functions almost right out. We have a 458 00:25:21,400 --> 00:25:23,480 Speaker 1: bunch of extra cash, and like, why not you know, 459 00:25:23,560 --> 00:25:26,000 Speaker 1: do something really simple with it. You know, normally you 460 00:25:26,000 --> 00:25:29,000 Speaker 1: wouldn't think of buying tech stocks as as a treasury function. 461 00:25:29,080 --> 00:25:32,800 Speaker 1: But you know, again, I think that gets relative if 462 00:25:32,800 --> 00:25:35,040 Speaker 1: you think of the risk that they take in private 463 00:25:35,040 --> 00:25:38,439 Speaker 1: markets investing uh, you know, investing ten billion dollars and 464 00:25:38,440 --> 00:25:40,840 Speaker 1: some megacap tech companies is obviously a whole lot less 465 00:25:40,880 --> 00:25:43,080 Speaker 1: risk than putting ten billion dollars into what we work 466 00:25:43,320 --> 00:25:46,240 Speaker 1: or something like that. So it's it's certainly a different 467 00:25:46,359 --> 00:25:49,240 Speaker 1: style of things. But is it like some totally crazy 468 00:25:49,280 --> 00:25:52,879 Speaker 1: thing to do? I mean, I don't know. I have 469 00:25:52,920 --> 00:25:56,359 Speaker 1: a quick question. It's not quite related to this specific incident, 470 00:25:56,400 --> 00:25:59,359 Speaker 1: but you mentioned the sort of the coordination that goes 471 00:25:59,400 --> 00:26:03,560 Speaker 1: on in the discord chats all these small traders. How 472 00:26:03,720 --> 00:26:07,560 Speaker 1: different is this in terms of its market impact from 473 00:26:07,720 --> 00:26:11,560 Speaker 1: the days, say twenty years ago or something, when a 474 00:26:11,640 --> 00:26:16,920 Speaker 1: handful of macro fund managers like you know, the soros 475 00:26:17,080 --> 00:26:19,600 Speaker 1: Is and Druck and Miller's really like would have been 476 00:26:19,960 --> 00:26:23,080 Speaker 1: the big players and some of these markets, and the 477 00:26:23,160 --> 00:26:28,280 Speaker 1: degree to which they could generate alphabi essentially you know, 478 00:26:28,640 --> 00:26:32,320 Speaker 1: play moving the market due to their way. I mean, 479 00:26:32,359 --> 00:26:35,359 Speaker 1: that's a great question. It's it's obviously a very different 480 00:26:35,359 --> 00:26:39,359 Speaker 1: flavor kind of a few concentrated large investors, um, you know, 481 00:26:39,480 --> 00:26:43,160 Speaker 1: versus a huge herd of smaller ones that do effectively 482 00:26:43,280 --> 00:26:47,080 Speaker 1: rely on you know, not just their own you know, uh, 483 00:26:47,200 --> 00:26:49,320 Speaker 1: not just their own money to move markets, but kind 484 00:26:49,320 --> 00:26:51,680 Speaker 1: of putting some of the conditions in place to amplify 485 00:26:52,040 --> 00:26:53,840 Speaker 1: trends and so forth. But I mean, first it's a 486 00:26:53,840 --> 00:26:56,919 Speaker 1: lot more diversified. But you know, technology has really enabled 487 00:26:57,000 --> 00:27:00,560 Speaker 1: large scale coordination, right, um, and you see them that's 488 00:27:00,560 --> 00:27:02,640 Speaker 1: not just a finance phenomenon. I mean, that's a social 489 00:27:02,680 --> 00:27:05,240 Speaker 1: media phenomenon. And you know, in a lot of ways. 490 00:27:05,800 --> 00:27:07,200 Speaker 1: You know, you have to think of Redd at Wall 491 00:27:07,200 --> 00:27:09,480 Speaker 1: Street bets as as more of a product of kind 492 00:27:09,480 --> 00:27:13,040 Speaker 1: of the Internet and social media culture than of finance specifically. Right. 493 00:27:13,080 --> 00:27:16,240 Speaker 1: It's manifesting itself, you know now in trading and finance, 494 00:27:16,640 --> 00:27:19,120 Speaker 1: you know, but it's really this you know, technology enabled 495 00:27:19,200 --> 00:27:22,800 Speaker 1: rapid coordination function where an influencer can be followed by 496 00:27:22,840 --> 00:27:25,479 Speaker 1: millions of people and can say okay, let's do this 497 00:27:25,560 --> 00:27:27,320 Speaker 1: and actually get a lot of people to do things 498 00:27:27,320 --> 00:27:30,280 Speaker 1: in real time. It's you know, whereas in the nineties, 499 00:27:30,760 --> 00:27:32,640 Speaker 1: you know again you had you did actually have quite 500 00:27:32,640 --> 00:27:35,080 Speaker 1: at the nineties really were the last you know hey 501 00:27:35,160 --> 00:27:39,560 Speaker 1: day and retail option trading. Um it would have been uh, 502 00:27:39,920 --> 00:27:42,359 Speaker 1: I think still a much back in the nineties. You 503 00:27:42,400 --> 00:27:45,320 Speaker 1: think of who were, um, you know, what kinds of 504 00:27:45,359 --> 00:27:48,440 Speaker 1: people were like really active trading options in their new 505 00:27:48,480 --> 00:27:50,720 Speaker 1: e trade accounts and things like that. Right it was 506 00:27:51,240 --> 00:27:54,560 Speaker 1: you know, lawyers and doctors and dentists and people who 507 00:27:54,640 --> 00:27:57,639 Speaker 1: were kind of at the forefront of technology at the 508 00:27:57,680 --> 00:27:59,880 Speaker 1: time and getting interested in markets and had some money 509 00:27:59,880 --> 00:28:02,880 Speaker 1: to play with. Whereas I think, you know, now when 510 00:28:02,880 --> 00:28:05,880 Speaker 1: you look at you know, the breadth of a community 511 00:28:05,920 --> 00:28:07,639 Speaker 1: like red and Wall Street bets, you know, you have 512 00:28:08,280 --> 00:28:10,879 Speaker 1: you have a huge variety of different folks, some with 513 00:28:11,119 --> 00:28:13,439 Speaker 1: you know, meaningful bankrolls and some with pretty you know, 514 00:28:13,480 --> 00:28:15,840 Speaker 1: some with just a little bit of money, or some 515 00:28:15,880 --> 00:28:18,040 Speaker 1: who started out with ten thousand books and then now 516 00:28:18,080 --> 00:28:20,280 Speaker 1: it was two hundred thousand, and then it went to zero. 517 00:28:20,400 --> 00:28:22,760 Speaker 1: And you know the last week, I mean, one crazy 518 00:28:22,800 --> 00:28:26,400 Speaker 1: thing about Wall Street bets. It's a very gamified, aggressive 519 00:28:26,440 --> 00:28:28,560 Speaker 1: risk taking culture, right, And there's lots of posting of 520 00:28:28,600 --> 00:28:31,479 Speaker 1: P and L screenshots and the amount of the amount 521 00:28:31,520 --> 00:28:34,959 Speaker 1: of like posting a screenshot of your five dollar account 522 00:28:35,000 --> 00:28:38,040 Speaker 1: that just went to zero last you know, last last Friday, um, 523 00:28:38,120 --> 00:28:40,720 Speaker 1: and then like you know, laughing about that is is 524 00:28:40,720 --> 00:28:43,680 Speaker 1: pretty shocking. This was going to be my next question, 525 00:28:44,080 --> 00:28:48,160 Speaker 1: this gamification of trading idea. And you mentioned earlier the 526 00:28:48,240 --> 00:28:54,160 Speaker 1: overlap of bitcoin traders or cryptocurrency traders with Wall Street bets. 527 00:28:54,000 --> 00:28:58,080 Speaker 1: It does seem like the way they're trading and the 528 00:28:58,160 --> 00:29:01,160 Speaker 1: things that they're investing in are just sort of much 529 00:29:01,200 --> 00:29:05,280 Speaker 1: more exciting than traditional you know, buy and hold for 530 00:29:05,320 --> 00:29:09,040 Speaker 1: the long term investing. Is that going to be the 531 00:29:09,120 --> 00:29:12,280 Speaker 1: new normal? Like? Are we ever going to go back 532 00:29:12,320 --> 00:29:17,720 Speaker 1: to a time where call options aren't as popular as 533 00:29:17,720 --> 00:29:22,160 Speaker 1: they are now? I think we probably will write you 534 00:29:22,400 --> 00:29:25,400 Speaker 1: generally speaking the way that I think you have to 535 00:29:25,480 --> 00:29:30,240 Speaker 1: expect these kind of uh, these kind of trends to 536 00:29:30,480 --> 00:29:34,240 Speaker 1: end as with very large losses among you know, the 537 00:29:34,280 --> 00:29:36,760 Speaker 1: segment of people that are that are very heavily involved. Right, 538 00:29:36,800 --> 00:29:42,080 Speaker 1: this is extraordinarily risky speculation, UM, where you know, I 539 00:29:42,120 --> 00:29:44,120 Speaker 1: think you know, when I when a hedge fund, when 540 00:29:44,120 --> 00:29:47,200 Speaker 1: a volatility and derivatives have fun thinks about how to 541 00:29:47,280 --> 00:29:49,720 Speaker 1: quantify risks and how to measure how much risk you're 542 00:29:49,720 --> 00:29:52,240 Speaker 1: taking in the portfolio. You know, obviously we think about 543 00:29:53,320 --> 00:29:55,480 Speaker 1: how risky a short term option is, and the fact 544 00:29:55,560 --> 00:29:57,880 Speaker 1: that you know, if you're buying a one week call 545 00:29:58,000 --> 00:30:00,600 Speaker 1: upside call option on Tesla, if it just doesn't go 546 00:30:00,680 --> 00:30:02,720 Speaker 1: up ten percent, you're just gonna lose all your money. 547 00:30:02,760 --> 00:30:06,480 Speaker 1: And and so you as size a variety of bets accordingly, 548 00:30:06,640 --> 00:30:09,480 Speaker 1: right versus the gamified risk taking culture you see in 549 00:30:09,680 --> 00:30:12,880 Speaker 1: redd a Wall Street that's being uh, you know, people say, well, 550 00:30:12,920 --> 00:30:14,840 Speaker 1: I have a hundred thousand dollars in my brokerage account. 551 00:30:14,840 --> 00:30:17,520 Speaker 1: What's interesting to do today, Well, it's buying those Tesla calls. 552 00:30:17,520 --> 00:30:19,560 Speaker 1: So I'll put that hundred thousand dollars into one week 553 00:30:19,600 --> 00:30:22,280 Speaker 1: Tesla calls. Right. Of course, what happens then is just 554 00:30:22,320 --> 00:30:24,120 Speaker 1: you lose, just lose all the money when kind of 555 00:30:24,160 --> 00:30:27,800 Speaker 1: the the huge upside move move stops. Right. So generally 556 00:30:27,840 --> 00:30:30,800 Speaker 1: over risk taking and complex instruments that are you know 557 00:30:31,640 --> 00:30:34,280 Speaker 1: like this, you know, just Lee, I think the end 558 00:30:34,280 --> 00:30:36,560 Speaker 1: game is a lot of people losing a lot of 559 00:30:36,560 --> 00:30:39,120 Speaker 1: money and stop and generally stopping doing this kind of 560 00:30:39,160 --> 00:30:40,960 Speaker 1: this kind of thing. But you know it can last 561 00:30:40,960 --> 00:30:43,240 Speaker 1: for a while because you have when you have these violent, 562 00:30:43,680 --> 00:30:46,040 Speaker 1: you know, rallies that just keep going. People can buy 563 00:30:46,080 --> 00:30:48,240 Speaker 1: lottery tickets over and over and over again and win, 564 00:30:48,480 --> 00:30:51,040 Speaker 1: you know, three times out of four and keep playing. 565 00:30:52,560 --> 00:30:55,480 Speaker 1: Is there a way with the data, so you know, 566 00:30:55,880 --> 00:30:59,680 Speaker 1: just going back to the original formulation of this, okay, 567 00:31:00,000 --> 00:31:04,560 Speaker 1: agressive call buying, and then the dealers have to sort 568 00:31:04,600 --> 00:31:07,040 Speaker 1: of hedge their exposure and so you know that they 569 00:31:07,040 --> 00:31:10,160 Speaker 1: have to buy stock. Is there a way to get 570 00:31:10,200 --> 00:31:12,959 Speaker 1: a feel in the data for the sort of the 571 00:31:13,000 --> 00:31:17,520 Speaker 1: community of dealers overall the degree to which, at any 572 00:31:17,600 --> 00:31:21,160 Speaker 1: given moment the degree and volume to which they'll have 573 00:31:21,240 --> 00:31:23,520 Speaker 1: to jump in. So let's say, okay, I don't know, 574 00:31:23,560 --> 00:31:26,040 Speaker 1: Tesla is up again today, So Tesla I think is 575 00:31:26,120 --> 00:31:29,400 Speaker 1: up like five percent as we're speaking. Is there a 576 00:31:29,400 --> 00:31:32,360 Speaker 1: way to no sort of in real time or roughly 577 00:31:32,440 --> 00:31:36,880 Speaker 1: real time, what that translates into in terms of forced 578 00:31:36,920 --> 00:31:40,240 Speaker 1: buying or forced hedging, given what we've given the sort 579 00:31:40,240 --> 00:31:43,640 Speaker 1: of constellation of outstanding options there are. So that's a 580 00:31:43,720 --> 00:31:46,000 Speaker 1: very good question. You downplay I don't know anything about 581 00:31:46,000 --> 00:31:48,040 Speaker 1: this delta hedging stuff. And then you ask a very 582 00:31:48,040 --> 00:31:50,840 Speaker 1: good question like that, So, I mean, so no is 583 00:31:50,880 --> 00:31:53,280 Speaker 1: too strong of a word, but you can certainly attempt 584 00:31:53,280 --> 00:31:56,280 Speaker 1: to model or estimate that dynamic right and and you 585 00:31:56,320 --> 00:31:58,920 Speaker 1: know you wouldn't be surprised that, you know, folks like 586 00:31:59,000 --> 00:32:01,320 Speaker 1: us spend a decent amount time on that. But you know, 587 00:32:01,360 --> 00:32:03,800 Speaker 1: think of it as you know, you have to observe 588 00:32:04,320 --> 00:32:06,640 Speaker 1: all of the trades that happen in the marketplace. You 589 00:32:06,680 --> 00:32:11,520 Speaker 1: have to have an educated way of modeling or guessing. Um, 590 00:32:11,760 --> 00:32:16,240 Speaker 1: is this a trade that was a customer purchase of 591 00:32:16,280 --> 00:32:19,400 Speaker 1: an option from a you know, dealer or dynamic header 592 00:32:19,600 --> 00:32:22,680 Speaker 1: with what probability do you think that that's true? Uh? 593 00:32:22,720 --> 00:32:25,960 Speaker 1: You know, building up your kind of simulated portfolio that 594 00:32:26,080 --> 00:32:29,560 Speaker 1: you think that dealers hold and volatility arbitrage managers hold 595 00:32:29,720 --> 00:32:32,480 Speaker 1: versus and customers who aren't dealt to hedging, and you 596 00:32:32,520 --> 00:32:34,840 Speaker 1: have to make a variety of assumptions and you have 597 00:32:34,920 --> 00:32:36,960 Speaker 1: to write it's a it's a modeled exercise. You have 598 00:32:37,000 --> 00:32:39,080 Speaker 1: a probability distribution around it. But then you can end 599 00:32:39,120 --> 00:32:41,320 Speaker 1: up with Okay, here's you know sort of how much 600 00:32:41,360 --> 00:32:45,040 Speaker 1: dollar get, Here's how we think the gamma profile of 601 00:32:45,120 --> 00:32:48,200 Speaker 1: dynamic headers, dealers and market makers and ball ARBs in 602 00:32:48,200 --> 00:32:50,520 Speaker 1: a particular stock is at a particular time, and how 603 00:32:50,560 --> 00:32:53,360 Speaker 1: that changes as the as the underlying spot price moves 604 00:32:53,840 --> 00:32:57,720 Speaker 1: um and you know generally, you know, I think before 605 00:32:57,800 --> 00:33:01,600 Speaker 1: this huge retail um you fhoria of the last six months, 606 00:33:01,680 --> 00:33:03,720 Speaker 1: you know, a lot of that effort we would focus on, 607 00:33:03,960 --> 00:33:06,360 Speaker 1: you know, looking at the SMP five hundred, because actually 608 00:33:06,400 --> 00:33:09,680 Speaker 1: gamma positioning of dealers in you know, the megacaby index 609 00:33:10,360 --> 00:33:14,000 Speaker 1: was a huge and very important phenomenon driven by institutional 610 00:33:14,320 --> 00:33:18,440 Speaker 1: um largely called selling and put selling. But now but 611 00:33:18,560 --> 00:33:21,080 Speaker 1: now actually much of the new trend is single a 612 00:33:21,640 --> 00:33:25,800 Speaker 1: gallon positioning, driven again by these very short term retail flows. 613 00:33:25,800 --> 00:33:28,560 Speaker 1: So we talk a lot about the idea of the 614 00:33:28,560 --> 00:33:32,200 Speaker 1: options traders having an impact on the markets through delta 615 00:33:32,280 --> 00:33:35,959 Speaker 1: hedging and the dynamics at the dealers themselves. Is there 616 00:33:36,160 --> 00:33:41,040 Speaker 1: a scenario in which the dealers can have a sort 617 00:33:41,080 --> 00:33:43,440 Speaker 1: of impact, like is there a scenario in which it 618 00:33:43,480 --> 00:33:46,440 Speaker 1: can reverse? Can something happen at the dealers so that 619 00:33:46,520 --> 00:33:49,800 Speaker 1: they become caught offside in the market or they end 620 00:33:49,880 --> 00:33:51,960 Speaker 1: up taking a position in the market which they hadn't 621 00:33:51,960 --> 00:33:55,120 Speaker 1: intended to, and that affects the underlying and then it's 622 00:33:55,160 --> 00:34:00,880 Speaker 1: sort of ruins UM Wall Street bets trades. I think 623 00:34:00,920 --> 00:34:03,600 Speaker 1: that you know, ultimately, you know, there's a there's a 624 00:34:03,640 --> 00:34:06,720 Speaker 1: price for everything, right. Well, some of the early UM 625 00:34:06,760 --> 00:34:09,920 Speaker 1: I think there were examples of dealers and market makers, 626 00:34:10,040 --> 00:34:12,120 Speaker 1: you know, losing a material amount of money on some 627 00:34:12,239 --> 00:34:16,600 Speaker 1: of the early growth in in this you know, speculative 628 00:34:16,640 --> 00:34:20,560 Speaker 1: retail flow in options because you know, typically as a 629 00:34:20,600 --> 00:34:23,280 Speaker 1: dealer that has experienced over the last ten or twenty years, 630 00:34:23,320 --> 00:34:26,480 Speaker 1: you know, you see significant retail flow emerging in some 631 00:34:26,719 --> 00:34:29,520 Speaker 1: stock UM in the options on that stock. You know, 632 00:34:29,560 --> 00:34:32,320 Speaker 1: you view that as uninformed flow that's kind of paying 633 00:34:32,320 --> 00:34:34,640 Speaker 1: the offer side, and you're really happy to take a 634 00:34:34,640 --> 00:34:37,359 Speaker 1: big position, you know, facing those folks earning a lot 635 00:34:37,360 --> 00:34:39,200 Speaker 1: of bit offer and you know not to worry that 636 00:34:39,239 --> 00:34:41,759 Speaker 1: they sort of know something, right UM. And then what 637 00:34:41,880 --> 00:34:44,400 Speaker 1: you saw like in Tesla earlier, you know, much earlier 638 00:34:44,400 --> 00:34:47,600 Speaker 1: this year, right, was that flow coming and coming and 639 00:34:47,640 --> 00:34:50,240 Speaker 1: coming in huge size and pushing the stock and pushing 640 00:34:50,239 --> 00:34:52,839 Speaker 1: the stock and huge realized volatility. And you actually saw 641 00:34:52,880 --> 00:34:54,600 Speaker 1: some of the market makers lose a material amount of 642 00:34:54,600 --> 00:34:57,000 Speaker 1: money on that UM and I think you know, over 643 00:34:57,120 --> 00:34:59,719 Speaker 1: over time, you saw but what you saw is first 644 00:34:59,760 --> 00:35:02,440 Speaker 1: of all, imply volatilities moving much higher in those in 645 00:35:02,480 --> 00:35:04,920 Speaker 1: those names, right, so you know, dealers charging a much 646 00:35:05,000 --> 00:35:08,680 Speaker 1: higher price to facilitate that flow. And then you know 647 00:35:08,800 --> 00:35:12,480 Speaker 1: of a deployment of a variety of techniques and you know, 648 00:35:12,560 --> 00:35:15,880 Speaker 1: hedging techniques to try to better protect themselves. So you know, 649 00:35:16,000 --> 00:35:18,880 Speaker 1: think of think of you know, accumulation of inventory in 650 00:35:19,000 --> 00:35:23,000 Speaker 1: anticipation of future customer flow as a polite for um, 651 00:35:23,040 --> 00:35:25,560 Speaker 1: you know, put and leaning extra long the stock and 652 00:35:25,640 --> 00:35:28,560 Speaker 1: anticipation of how things are moving. And you know, so 653 00:35:28,680 --> 00:35:30,239 Speaker 1: at some point, you know, you saw a test short 654 00:35:30,320 --> 00:35:32,479 Speaker 1: term Tesla options trading at a hundred and twenty Imply 655 00:35:32,600 --> 00:35:35,480 Speaker 1: ball or a hundred forty Imply ball, right, so you know, 656 00:35:35,520 --> 00:35:38,240 Speaker 1: the market re equilibrates itself to the point where dealers 657 00:35:38,400 --> 00:35:41,359 Speaker 1: and and people who are short those options you can 658 00:35:41,400 --> 00:35:43,279 Speaker 1: make money on the positions because that's sort of how 659 00:35:43,280 --> 00:35:46,200 Speaker 1: supply and demand works, right. So I think you know, 660 00:35:46,280 --> 00:35:49,239 Speaker 1: are there, are there, You know, dealers know what they're doing, 661 00:35:49,280 --> 00:35:52,640 Speaker 1: and the I think that with these kind of products, 662 00:35:52,640 --> 00:35:54,919 Speaker 1: it's not too likely that there's gonna be like catastrophic 663 00:35:54,960 --> 00:35:56,960 Speaker 1: losses that you know, JP Morgan are something that are 664 00:35:57,000 --> 00:36:00,000 Speaker 1: going to shut down, you know, realistic capacity of options 665 00:36:00,080 --> 00:36:03,319 Speaker 1: market makers to to to support this. I just have 666 00:36:03,400 --> 00:36:07,560 Speaker 1: one more question. So you know, basic ideas, you know, 667 00:36:07,800 --> 00:36:10,279 Speaker 1: buying a call, it's inherently levered. You put up a 668 00:36:10,320 --> 00:36:11,960 Speaker 1: little bit of money, you can either make a lot, 669 00:36:12,040 --> 00:36:13,719 Speaker 1: but if you don't, you know, it doesn't go in 670 00:36:13,760 --> 00:36:16,120 Speaker 1: the money, you lose everything. And so it's a it's 671 00:36:16,120 --> 00:36:18,960 Speaker 1: a leverage bed. And when the market you know, crashed 672 00:36:19,000 --> 00:36:21,560 Speaker 1: in February and March, and I thought back to that 673 00:36:21,640 --> 00:36:23,560 Speaker 1: Luke article, I was like, well, that was the top 674 00:36:23,600 --> 00:36:26,319 Speaker 1: and they're all finished, you know, all these leveraged long 675 00:36:26,400 --> 00:36:30,399 Speaker 1: call buyers, they're gone. And then it's like no, they 676 00:36:30,440 --> 00:36:34,000 Speaker 1: like immediately they didn't waste any time coming back, and 677 00:36:34,160 --> 00:36:36,479 Speaker 1: that that article did not turn out to be the top. 678 00:36:36,560 --> 00:36:40,239 Speaker 1: But are you surprised that that the speed and intensity 679 00:36:40,239 --> 00:36:43,400 Speaker 1: of that washout didn't just sort of like obliterate that 680 00:36:43,520 --> 00:36:46,319 Speaker 1: community and that you know, are you surprised at how 681 00:36:46,440 --> 00:36:49,200 Speaker 1: quickly they regrouped and got back in the game or 682 00:36:49,239 --> 00:36:51,520 Speaker 1: were you surprised at the time. Yeah, I mean I 683 00:36:51,880 --> 00:36:54,279 Speaker 1: I was to some extent, I definitely, you know, you 684 00:36:54,320 --> 00:36:56,839 Speaker 1: would have typically thought if you have a big emergence 685 00:36:56,920 --> 00:36:58,800 Speaker 1: of a lot of speculation and then you have a 686 00:36:58,880 --> 00:37:01,080 Speaker 1: huge market sell, often people get burned and then they 687 00:37:01,160 --> 00:37:03,360 Speaker 1: kind of take their ball and go home, right. I mean, 688 00:37:03,440 --> 00:37:06,480 Speaker 1: I think part of it is I think the size 689 00:37:06,480 --> 00:37:09,719 Speaker 1: of that community has been expanding steadily. Right. So it's 690 00:37:10,160 --> 00:37:12,680 Speaker 1: you know, new entrance to the to the space. Um. 691 00:37:12,719 --> 00:37:16,000 Speaker 1: And that was amplified by by COVID and lockdown and 692 00:37:16,040 --> 00:37:17,600 Speaker 1: the fact that all of a sudden you sent a 693 00:37:17,600 --> 00:37:19,759 Speaker 1: ton of people home to work on their computers at 694 00:37:19,800 --> 00:37:22,080 Speaker 1: home with nobody staring over there over their back and 695 00:37:22,080 --> 00:37:27,160 Speaker 1: their board, right, Um, you know, anecdotally, and I think 696 00:37:27,160 --> 00:37:31,280 Speaker 1: everybody has these anecdotes, right, But cousins and uncles and 697 00:37:31,560 --> 00:37:34,920 Speaker 1: everybody in the back office at the banks that you know, 698 00:37:35,320 --> 00:37:38,040 Speaker 1: you know, all are like opening robin Hood accounts or 699 00:37:38,280 --> 00:37:41,600 Speaker 1: again robin Hood using that term bury broadly opening brokerage 700 00:37:41,600 --> 00:37:44,400 Speaker 1: accounts and asking about options trading and asking how to 701 00:37:44,400 --> 00:37:46,040 Speaker 1: do things. And so I think a lot of new 702 00:37:46,560 --> 00:37:50,880 Speaker 1: new participants have been you know, brought in. And you 703 00:37:50,920 --> 00:37:52,560 Speaker 1: know the other thing, you know, some of these folks 704 00:37:52,560 --> 00:37:55,040 Speaker 1: again are small scale guys who scraped together or girls 705 00:37:55,080 --> 00:37:56,920 Speaker 1: who scraped together five or ten grand, and you know, 706 00:37:56,960 --> 00:37:59,000 Speaker 1: trying to get into this stuff. You know, but there's 707 00:37:59,000 --> 00:38:02,880 Speaker 1: plenty of associates at law firms and investment banking analysts 708 00:38:02,880 --> 00:38:04,560 Speaker 1: and you know, people who have money to burn and 709 00:38:04,600 --> 00:38:08,080 Speaker 1: who have incomes and who aren't outspending them on drinks 710 00:38:08,080 --> 00:38:10,000 Speaker 1: and bars in Manhattan. They got to find some other 711 00:38:10,040 --> 00:38:12,120 Speaker 1: form of entertainment and this is what they're doing, right, 712 00:38:12,480 --> 00:38:16,000 Speaker 1: And so it's it's it is an impressive phenomenon. It's 713 00:38:16,000 --> 00:38:19,440 Speaker 1: impressive how fast it it resurged after after March, and 714 00:38:19,480 --> 00:38:25,080 Speaker 1: how it's accelerated to much bigger scale even even since then. Ben, 715 00:38:25,160 --> 00:38:26,640 Speaker 1: that was great. You know, I said in the beginning 716 00:38:26,880 --> 00:38:29,880 Speaker 1: you have a knack or a gift for explaining complex 717 00:38:29,880 --> 00:38:33,200 Speaker 1: stuff in clear English, and I think you really delivered. 718 00:38:33,239 --> 00:38:36,880 Speaker 1: That was super helpful, and uh, I really appreciate you joining. Cool. 719 00:38:36,880 --> 00:38:51,480 Speaker 1: Thanks guys, love fun as always. Thanks Ben Tracy. I 720 00:38:51,480 --> 00:38:53,840 Speaker 1: think I'm actually gonna remember what delta hedging is. No, 721 00:38:54,400 --> 00:38:57,439 Speaker 1: you're not, You're totally not. No. I think I will. 722 00:38:57,480 --> 00:38:59,680 Speaker 1: I think I will. Next time, there's like a big 723 00:38:59,680 --> 00:39:03,160 Speaker 1: option and story and we get Ben back out of 724 00:39:03,160 --> 00:39:05,839 Speaker 1: the podcast to explain what's going on. I actually don't think. 725 00:39:06,000 --> 00:39:09,480 Speaker 1: I think this time I'll really internalize like what it means. 726 00:39:09,760 --> 00:39:14,160 Speaker 1: I think I'm confident in myself. Okay, Um, I was 727 00:39:14,200 --> 00:39:17,160 Speaker 1: just thinking on that gamification point, Like I know Ben 728 00:39:17,320 --> 00:39:19,920 Speaker 1: said he thinks there's a point at which things will 729 00:39:20,000 --> 00:39:22,799 Speaker 1: kind of return to normal, But I don't know. I 730 00:39:22,840 --> 00:39:26,720 Speaker 1: kind of wonder if you can put the excitement genie 731 00:39:27,120 --> 00:39:31,000 Speaker 1: back in the bottle, right, like once you've traded something 732 00:39:31,040 --> 00:39:34,000 Speaker 1: like crypto, or once you've made a bunch of money 733 00:39:34,200 --> 00:39:36,520 Speaker 1: on a on a really leveraged trade that you didn't 734 00:39:36,520 --> 00:39:39,759 Speaker 1: pay anything for on on robin hood. I don't know, 735 00:39:39,840 --> 00:39:41,840 Speaker 1: Like I think it might be hard to go back, 736 00:39:41,880 --> 00:39:44,919 Speaker 1: like it has become a form of entertainment and not 737 00:39:45,000 --> 00:39:50,680 Speaker 1: necessarily just a way of making money. Yeah, I'm kind 738 00:39:50,680 --> 00:39:52,319 Speaker 1: of with you. I mean, look, if we had like 739 00:39:52,400 --> 00:39:56,920 Speaker 1: some huge, massive sustained market sell off, if we hadn't 740 00:39:56,920 --> 00:40:01,120 Speaker 1: gotten this rebound, if markets had kept going lower in March, 741 00:40:01,640 --> 00:40:05,839 Speaker 1: if the unemployment rate UM just continued to worsen, then 742 00:40:05,960 --> 00:40:09,200 Speaker 1: probably that would really iceless for a while. But of 743 00:40:09,200 --> 00:40:10,719 Speaker 1: course we have seen a rebound in a lot of 744 00:40:10,719 --> 00:40:14,040 Speaker 1: different measures, both marketing real economy. So you know, I 745 00:40:14,040 --> 00:40:16,560 Speaker 1: think the broad thing is and Then's something that we've 746 00:40:16,560 --> 00:40:19,839 Speaker 1: talked about in other UM avenues is like so many 747 00:40:19,880 --> 00:40:23,360 Speaker 1: aspects of this crisis of just accelerated pre existing trends, 748 00:40:23,800 --> 00:40:27,240 Speaker 1: and the chart of this sort of retail options trading 749 00:40:27,840 --> 00:40:30,279 Speaker 1: leading into this is just another example of it. It 750 00:40:30,360 --> 00:40:34,839 Speaker 1: was picking up pretty strongly in and then it just 751 00:40:35,120 --> 00:40:38,200 Speaker 1: went insane over the last six months. Yeah, and I 752 00:40:38,200 --> 00:40:40,680 Speaker 1: guess my other big question on all of this is 753 00:40:41,680 --> 00:40:45,560 Speaker 1: what regulators are going to do if anything, like clearly 754 00:40:45,600 --> 00:40:48,920 Speaker 1: this behavior is having an impact on the market. You 755 00:40:48,960 --> 00:40:53,319 Speaker 1: can't really argue that it's insider trading because all the 756 00:40:53,360 --> 00:40:56,520 Speaker 1: people on Wall Street bets, you know, presumably you don't 757 00:40:56,560 --> 00:40:59,000 Speaker 1: have any insider knowledge. They're just saying let's all buy 758 00:40:59,680 --> 00:41:02,840 Speaker 1: at the particular time. But it's still sort of a 759 00:41:03,560 --> 00:41:06,319 Speaker 1: I don't know, it's it's coordinated in a way that 760 00:41:06,440 --> 00:41:12,960 Speaker 1: I would think, um, catches someone's eye. Yeah, it's super interesting. Also, 761 00:41:13,040 --> 00:41:15,640 Speaker 1: just going back to the key point Um, you know, 762 00:41:15,680 --> 00:41:19,280 Speaker 1: it seemed like Ben was pretty dismissive of the soft 763 00:41:19,320 --> 00:41:22,000 Speaker 1: bank whale theory. I mean, it's sort of like an 764 00:41:22,000 --> 00:41:25,799 Speaker 1: interesting SoftBank story because soft bank always seems to be 765 00:41:25,920 --> 00:41:28,960 Speaker 1: riding whatever wave is going on at the moment and 766 00:41:29,120 --> 00:41:31,640 Speaker 1: riding the waves up and riding the waves down. But 767 00:41:32,200 --> 00:41:34,919 Speaker 1: you know, it's obviously, in terms of what we've seen 768 00:41:34,960 --> 00:41:41,240 Speaker 1: since March, a much bigger story than just that. Yeah, 769 00:41:41,280 --> 00:41:43,920 Speaker 1: I think I think the narrative around soft Bank that 770 00:41:43,960 --> 00:41:46,080 Speaker 1: they hired a bunch of people from Deutsche Bank who 771 00:41:46,080 --> 00:41:49,040 Speaker 1: are now putting on these riskered lever trades is a 772 00:41:49,080 --> 00:41:53,120 Speaker 1: really difficult one to fight against. But Ben's description of 773 00:41:53,320 --> 00:41:56,759 Speaker 1: call spreads as a risk mitigation strategy rather than an 774 00:41:56,800 --> 00:42:00,520 Speaker 1: outright that I think was an interesting one. So we'll 775 00:42:00,760 --> 00:42:03,799 Speaker 1: see if that catches on, But somehow I doubt we'll 776 00:42:03,800 --> 00:42:07,000 Speaker 1: see Why should we leave it there? Yeah? Okay, this 777 00:42:07,120 --> 00:42:10,160 Speaker 1: has been another episode of the All Thoughts Podcast. I'm 778 00:42:10,239 --> 00:42:13,160 Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy 779 00:42:13,200 --> 00:42:16,919 Speaker 1: Alloway and I'm Joe wisn'tal. You can follow me on 780 00:42:16,960 --> 00:42:20,359 Speaker 1: Twitter at the Stalwark and be sure to follow our 781 00:42:20,440 --> 00:42:23,919 Speaker 1: guest on Twitter, Ben Effort. It's Ben with two ends. 782 00:42:24,280 --> 00:42:28,880 Speaker 1: P Effort absolutely must follow great on all of this stuff. 783 00:42:28,960 --> 00:42:32,840 Speaker 1: If you're interested. Follow our producer on Twitter, Laura Carlson. 784 00:42:32,960 --> 00:42:36,800 Speaker 1: She's at Laura M. Carlson. Follow the Bloomberg head of podcast, 785 00:42:36,880 --> 00:42:40,799 Speaker 1: Francesca Levie at Francesca Today and check out all of 786 00:42:40,800 --> 00:42:44,920 Speaker 1: our podcasts at Bloomberg under the handle at podcast. Thanks 787 00:42:44,960 --> 00:43:00,360 Speaker 1: for listening to