Why Options Trump Stocks, And What To Do About That
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Not Optional But Essential.
by Alex King, CEO, Cestrian Capital Research, Inc.
Personally, I came to the options market later in my investing career.
Even today I rarely trade options directly, because simple positions have a risk of going to zero, and complex positions are …. too complex for me to want to think about most of the time. I do use long-dated index puts for hedging when I think the Vix has hit the lows, and I sometimes use long-dated LEAP calls if I want to place a speculative bet on something and don’t want to tie up much capital allocation (and I tend to size these for a total loss just in case!).
But I spend a lot of time studying the options market. Why? Because options trump stocks. If you want to know what drags stock prices around most of the time, it is the trader- and dealer-hedging interplay in the options market. You don’t have to have a PhD in statistics or probability to understand how this works - if you are a competent investor and/or trader in common stocks, you can understand the options market impact on stock prices - if you try! And it is well worth trying.
Why did the market rip up and out of the Covid crisis lows in 2020? Because option market-maker hedging flows provided the kindling to ignite the fuel poured on the fire by the Fed, that’s why.
Why did the Great Financial Crisis end so abruptly in the market in 2009? Same reason. Market-maker hedging flows + stimulus = moonage.
Want to know when this wonderful bull market hits a top? The options market will tell you, if you know how to listen.
Now, I got my start in understanding the options market because a wise subscriber of ours told me about a former options market-maker, Brent Kochuba, who had started educating rubes like myself about how to use option market movements to be a better investor in stocks. I got to know Brent a little, started using his SpotGamma website, and gradually found a whole new level of insight and understanding into the stock market.
Today at 1615 Eastern, Brent Kochuba of SpotGamma joins me live on one of our subscriber webinars. We run all such events on a live and open-mic basis - it’s a lot more fun and productive than just a YouTube lecture!
If you’d like to join us we’re opening the webinar up to all our readers and followers. You don’t have to become a subscriber and you don’t have to pay. And you don’t have to speak either, but you should absolutely ask questions and share your views if you want to - we welcome it, this is what makes our webinars so good.
You can register for the live webinar here.
See you at 4.15pm, Eastern. I absolutely guarantee that you will learn something to your benefit.
Cestrian Capital Research, Inc - 17 July 2025