The Market Huddle Mastering Gamma, Dispersion & Volatility! (Guest: Brent Kochuba)
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Aug 14, 2024 
Brent Kochuba, founder of Spot Gamma and an expert in market volatility, dives into the intricacies of gamma and dispersion trading. He explains how options markets shape short-term price movements and discusses the implications of options expirations on volatility. The conversation highlights the significance of correlations among stocks, the impact of tech trading activity, and the risks of short volatility strategies. Tune in to unpack how to better navigate market shifts and leverage insights during uncertain times.
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How Dealer Hedging Moves Markets
- Options market makers hedge their sold options by buying or selling the underlying stock, linking options activity to stock price movements.
- This hedging flow significantly impacts market volatility, especially as options trading volume grows immensely.
Options Expirations Remove Market Support
- Options expirations can be turning points because when calls expire, dealers remove their hedging stock purchases, removing support for the market.
- The removal of hedging flows after expiring options can cause market price declines.
Extreme Dispersion in Tech Stocks
- Record low correlation between single stocks and indices showed extreme dispersion driven by heavy momentum trading in mega-cap tech.
- This concentration made the market fragile and prone to sudden shifts or unwinds.