Below is a chart and brief excerpt from today's Early Look written by Hedgeye Director of Research Daryl Jones.
The slide below is from yesterday’s 3Q 2023 Macro Themes presentation. The first graph looks at news story mentions and references in company conference calls for “AI.” No surprise, this graph went parabolic in Q2. Alongside this was a graph of call option activity on the S&P 500 over the past 10 years.
Also not surprisingly, the second chart “hockey-sticked” in Q2. In fact, in June 2023 alone there were some 800 million call option contracts that were purchased. A significant portion of this call activity was related to 0DTE options, so extremely short-dated calls. In effect, a bet that either you win, or a bet goes to zero very shortly thereafter. If that sounds like gambling, well it should.
Now what does this have to do with the economy? Well, not really all that much, which is kind of the point. But as stock market operators, we have to consider the structural makeup of the market as a real and sustained influence on the future ... as disturbing as some of this activity may seem.