The Derivative - How Chicago Became the World’s Options, Vol, and Derivatives Capital (with Cboe’s Rob Hocking & Mandy Xu)

Episode Date: June 18, 2026

On this episode of The Derivative, Jeff Malec continues Chicago Month with a deep dive into the past, present, and future of derivatives and volatility at Cboe with two of its stars. First up, Cboe Global Head of Derivatives Rob Hocking traces Chicago’s rise as the world’s derivatives hub, from the Board of Trade’s agricultural hedging roots to SPX and VIX becoming the center of global risk transfer. Rob walks through life in the OEX and SPX pits, the culture of open outcry, the evolution from Hull and DRW to “the dark side” at the exchange, and how today’s liquidity, zero‑DTE flows, and concentrated market‑making still hold up under stress. He and Jeff dig into whether the derivative can ever outgrow the underlying, why S&P 500 remains the benchmark despite megacap concentration and global basis risk, and how Cboe balances the floor’s high‑touch block business with a mostly electronic market.Then Mandy Xu, Head of Derivatives Market Intelligence at Cboe, joins to break down the current volatility regime. She explains what VIX really measures (and why “fear gauge” is often wrong), how Cboe decomposes VIX into bullish vs bearish positioning, and why today’s record call‑chasing and low skew feel uncomfortably close to meme‑stock and late‑’90s territory. Mandy covers the rise of zero‑DTE, option‑income and buffered ETFs, the breakdown of stock–bond correlation, the AI‑driven dispersion trade, and whether vol selling is truly “artificially” suppressing risk. The trio also find time for some Chicago vs New York banter—pizza, skylines, seasons, and sports—and a look at what’s next from Cboe, from binaries on XSP to trading KPI‑style “valuation chain” products tied to names like Tesla and Cboe itself.00:00-01:43=Intro01:44–05:36 = From Corn Contracts to Options Hub05:37–20:42 = Pit Sheets to $5 Trillion a Day: Inside the S&P Options Machine20:43–30:29 = Game Within the Game30:30–35:36 = Big Blocks, Complex Trades, and the Future Beyond VIX38:07-42:15 =  Pork Chops at Soldier Field42:16–51:09 = Retail Flows and the New Vol Regime51:10–1:02:57 = Is VIX Still the Fear Gauge? What’s Really Driving Risk1:02:58-1:07:18 =  AI Winners, Dispersion, and the 60/40 Shift1:07:19-1:13:16 =  Building Better Hedges1:13:16-1:17:34 =  Chicago vs. New York: Pizza, Seasons, Sports, & Final WhistleFrom the Episode:How Futures saved Stocks RCM VIX WhitepaperBlog Post - VIXmaggaeddon Follow along with Rob Hocking, Mandy Xu, and the Cboe on LinkedIn and be sure to visit cboe.com for more information!Don't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-up for our blog digest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠.Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠⁠⁠⁠

Welcome to the derivative by RCM Alternatives. Send it. All right, everyone. Welcome back to the derivative, brought to you by RCM Alternatives, where, yes, I think we did it. It's live. We launched the new website. So head over to RCMaltz.com to check it out and drop us a line whether you like it or not. Drop us some guest suggestions for the pod also.

Email us, invest at RCMAM.com. All right. onto this pod where we have a two-parter both from the C-Bow or Chicago Board Options Exchange, as was formerly known. First up, Rob Hocking, Global Head of Derivatives at CBO, who's a Chicago guy, was on the floor at a prop firms, and now at the exchange itself, allowing us to dig into the history of Chicago as a risk city versus a capital formation city. You could argue New York or London.

After that, we bring on Mandy Zoo, Head of Derivatives Market Intelligence. at Cebo. My old job, not really, to dig into the details of the VIX and volatility space, the Sebo has made famous before arguing Chicago versus New York and several categories. Send it. All right, everybody. We're here with Rob Hocking. How are you, Rob? Wonderful. Thanks for having me. Thanks for having an easy name for me to pronounce. We were talking my partner Bobby has a similar painting That's a painting of the pit Is it of the of a Sebo pit?

I don't believe so actually Well If anything that looks about as close to the old OEX as possible I still with the white back there Yeah, exactly It might be And give us a quick Your quick background

We'll get into it more later But you were in the pits You've been a couple prop shots here in Chicago, you seem to have done it all. So give us a quick background. Yeah, thanks. I came out of University of Illinois right in right onto the CBO floor. I started working for Hull trading back in early 2000. Spent, well, I guess Hull slash Goldman, right virtually after I joined Hull, Goldman came in and purchased Hull trading. And so I kind of backdored my way into Goldman,

spent about 10 years at Goldman, basically in the index of all our business. trading, trading various books. Post Goldman, actually at the end of my career at Goldman, they had moved me to New York for 08, traded kind of over-the-counter derivatives as part of our market-making books. So OTC variance swaps, listed lookalikes, things like that. 08 was a crazy time of year to be doing that.

It was an awesome experience. But in 2010, sorry, in 08, I got engaged, wanted to move back to Chicago, do all the adult things like start a family, and ended up coming back to Chicago by way of DRW. And so I ran global, global volatility for DRW for just under 10 years. And then post that, ended up here at the exchange. Was it a little bit of like going to the dark side of the exchange? Like some of those problems you're constantly fighting with the exchange for better terms? yelling at fees, all that stuff.

Oh, yeah, for sure. And I think that's, if anything, that's probably made me a little more valuable at CBO just because I understand that side of the business, understand a lot of the tensions. And I even think, you know, I talk with, you know, many of the members on the floor and even some of my old friends at DRW or some of the other shops, like, you know, called CTC, Susquehanna. And I think bridging the gap between the two definitely is a good thing for the exchange and just kind of understanding both sides of it. But yeah, you know, I think they know I associate with some of their

complaints having been on that side of the business. And what were you a fan of the rebrand of CBO from Chicago Board Options Exchange? You know, it's, it ruined my Chicago month lead in here. I have to say CBO instead of Chicago board. Well, it's funny. It's like I understood the rebrand and it made sense post-bats acquisition to kind of, you know, blend the two brands. At the same point, it probably the hardest piece is when somebody says, well, what's CBO? And you always revert to, well, it's the Chicago Board Optics Exchange. And as soon as you say that, people are like, oh, yeah, okay, I get, you know, I know what you're talking about. So it's hard to, it's hard to decouple the two. It's, it's, when you look at it, it's fine. It's when you have to say it out loud. They're like,

with a W, with a one. And then quickly, you guys are in that beautiful space in the old post office now. Yeah, came over here during COVID. It's a, and it's an amazing office. They did such a nice job rehabbing this, you know, the old post office. They kept a lot of the, call it the original charm, but definitely modernized it. Yeah, I was in there the first time you guys allowed us to help host an event for the return stack guys. I think we did a podcast on that. We'll put it in the show notes, but I hadn't been in there since the re, and I'm like, what?

I don't think I was ever in there besides the floor level where you mail your letters or whatnot, but it's beautiful. Yeah, it's pretty cool. One of the rooms, it's like a conference room kept one of the old vault doors in the conference room. It's pretty neat. A lot of history here. I kind of want to stick with the Chicago theme for a minute and be like, why, in your opinion, why did Chicago become this derivatives hub, right, versus New York and London? Like, what are kind of comparing and contrast how Chicago and then New York had it all, right? They were trading the stocks.

They had everything there. They should have been the equity options group, you would think. little punchy Chicago came and grabbed it from him and what was it, 73? Yeah, yeah, 73. And yeah, I think if you kind of take step back and you go even farther back, you know, Chicago was really in the derivatives community here in Chicago has really had its identity around hedging, risk transfer, and that was really a function of, if I go back to, you know, mid-19th century with the creation of the board of trade.

So a function of the contracts that the Board of Trade, you know, first introduced were really, you know, call it agricultural hedging vehicles. And that was just because Chicago was between, you know, call it the railroads and the waterways. And it acted as a primary hub for connecting the Midwest agriculture production with the global markets. And so, as I said, you know, Board of Trade came about in 1848 and really introduced a standardized forward contract, which, ultimately evolved into what you, you know, what everybody calls today as futures contracts. And so, you know, this institutionalized hedging allowed producers and buyers the ability to lock in prices, you know, manage uncertainty around crop production. And it provided that, you know, standardization around, call it quality of contract, quantity, delivery time, location. You go through

all those different pieces. And it made all these contracts fungible, which is a huge, you know, kind of, I think it gets glossed over sometime, but fungibility between all of these contracts really made them tradable and made them, you know, ultimately scalable rather than how people used to hedge prior to that, which was call it, you know, bespoke one-off agreements. And so that gave way to moving past agriculture, you know, you kind of go in the progression, Chicago Mercantile Exchange or CME, you know, came into existence, expanded into livestock, later financial futures. And then as you mentioned, you know, April 26, 1973, CBO was born. And so Chicago Board Options Exchange, obviously, as we just talked about, evolved into CBO. And we were just founded with launching of the world's first listed options contract. So given the cities, you know, call it legacy and futures trading, it made it made us the natural home to extend risk transfer into those equity options contracts.

And kind of why New York wasn't really, really the place where that, where that, you know, centered. And then you actually spun out of the Board of Trade, right? Wasn't part of the Board of Trade originally? Yeah. Yeah. We spun out of the Board of Trade, moved across the street. Take us through kind of light. So when you were a member, you were in the pit itself, you were trading or you were a clerk or what were you doing?

Yeah, I started. Right when I got hired by Hall, I started as a clerk. Was a clerk in the OEX, so the S&P 100 pit. was a clerk in the SPX, so the SP500 pit. Spent most of my time, I would say we kind of went on a rotation, but it was between OEX, SPX, and then NDX at the time, which also traded on CBO. Oh, and so give us a little glimpse of the pit culture back then, right?

I tell people that you wouldn't believe the amount of paper on the floor at the end of the day, which was just one thing that digital's made better. But yeah, give us a little pit culture glimpse. Well, even walking in, you know, it's like I got to admit, like I fell in, I had no intention of being a trader, let alone a floor trader. The interview brought the- What's your major? What was your major? I was a finance major, but the interview process with Hull just I fell in love with and the guys I talked with. And then I stepped down to the trading floor and just fell in love with it. I'm an ex-athlet. I love to compete. probably to a fault if you asked my parents.

And here you go. You walk into an environment where there's 300 guys standing side by side in a trading crowd, all competing to interact with the same flow that's coming in. And so, you know, there was a certain kind of, I would call, electricity to the trading crowd. And at the same time, while you're competing with each other, there's also kind of this sense of community, much like, you know, a team environment, like like as an athlete,

fleet and you're all kind of living and breathing the markets together. The highs, you're kind of almost in a way, you know, celebrating the highs together, going through the lows together, just because as you're interacting with that flow, it tends to be, you know, very similar. Everybody manages their positions differently, but the overall markets, you kind of felt the highs and lows together. And this is a place where you could stand side by side and just compete and go nuts and, you know, almost want to kill the guy next to you. And then as soon as the, you know, closing bell would ring, you'd walk off the floor, you'd grab a beer with them and your best friends. And so it's a unique environment. I almost would equate it to, you know, you look at like

the Stanley Cup finals and you have two teams that are just killing themselves, guys playing with torn this, broken that. And then at the end, they all line up, they shake hands, there's kind of this mutual respect around kind of the competition itself. And I think that's what the floor was so interesting, like it was so cool to me and just interesting, is that, You had this intense moments of competition where you're laying prices and you're fighting for the floor. I'm sorry, fighting for the same flow on the floor. And then in between those trades, it was friendly. And you're talking to each other.

You're talking about the guy next to you. I was like, oh, my son's birthday and so forth. And so, you know, it's a unique environment. I always kind of called it controlled chaos when you look at it from the outside. And to your point, you know, in the early days, you would just see, Paper scattered all over the floor. People yelling and screaming while they're waving their hands looked somewhat, I would argue, dysfunctional. And then at the end of the day, those when you learned what was going on on the floor and you just kind of learned while the hand signals are our version of sign language, it's the way we communicate.

And the process of how we went through and how you consummated trades and ticketed them and wrote them down, got them to the tape, that it was all actually pretty darn efficient. And that it's kind of amazing. It was amazing. Yeah. Some of the largest risk transfers there are, you know, when it comes to just raw notional dollars, we're going through that trading floor. And it was just pretty cool to be a part of. Yeah. I was clerk in the bond pit at the Board of Trade.

And I was like the 20-something-year-old going to do outtrades at 5, 40, 6 a.m. I'm like, this is how this works. I'm just some hungover kid, like trying to find a six lot in bonds, not recognizing that was probably like whatever, 50. 100,000 and like someone's trying to duck the trade maybe. Like you think about it and even today, obviously the index in S&P 500 is appreciated to, you know, call it roughly 7,500. But that's driven, you know, right now given our volumes, it's like $5 trillion a day in Notional

goes through the SPX. And all of that has to get exposed, whether it's an open outcry or electronically, it all has to get exposed on CBO to the same like, group of liquidity providers. And that to me is just amazing that you have that big of a risk transfer going through every day with, and a lot of it's centered on the floor. Do you ever worry that the derivative outshines the core, right, that the tails wagging the dog, so to speak? Like, can it become so big that you start to, right? Why do we even care about what the underlying is, just trade the derivative? Right. Well, I think, you know, where the underlying

becomes super important. And this is where, you know, having an amazing partnership with S&P Dow Jones indices is, you know, they're constantly building the AUM tied to that to where I think right now, you know, last report I saw the end of 2024, they had around 20 trillion tied to the S&P 500. That's what creates the risk transfer market that you need the derivatives for in the first place. So while, yeah, there are moments in time where maybe. the derivatives market can really push, I would say, the underlying one way or the other. You're still ultimately relying on the use case of having these derivatives that allow you to hedge

that underlying exposure. And so as long as that AUM continues to grow, I think it supports the kind of the derivatives market that we have today. And then slight tangential follow up to that. Do you, I see like you have the mag seven, you have this massive all-time historical concentration in the winners take all kind of AI economy. Do you think that will lessen the impact of the S&P, right? If you just have these single names, why isn't all the flow going to the single names?

Slash, my other thought on that topic is like, it's always been amazing to me that there's not a million, there are, there's a lot of exchanges, but they're going to the CBO, they're going to the CBO, They're going to the SPX to hedge, right, whether they're in Asia or Europe or wherever, and taking that basis risk knowingly because of liquidity likely. But what are your thoughts on all that? I'm not sure if there was a question in there.

Yeah, no, I think you're 100% right on the liquidity aspect, which is why everybody turns to SPX in particular and the S&P 500 complex. And, you know, as you kind of pointed it out with the single names, but I'll back up and say even more from a global aspect, I would argue correlations continue to move closer and closer to one as we become more and more of a global economy. You know, it's like, you know, Asia is much more tied to the U.S., Europe's tied to the U.S. Asia and Europe are tied together. You know, it's like things are starting to move more in tandem to where you can use the high liquidity in SPX to be a suitable hedge.

And so I think you'll continue to see that. When it comes to the single names themselves, yeah, I think you're always, you're always, going to see some ebb and flow. And yeah, we've, we've amassed to where those seven names are really driving the index. Is that going to lessen the need for the index? I don't think so. I think you're always going to have, you know, diversity and taking something, not trading the single name, but trading a basket of 500 names, even though they're highly correlated, there are still benefits to having the diversity of the 500 names, even when any one industry or any one sector, to me, gets hot and starts to dominate. And so,

You know, you've still seen the utility, I would say, in the 500. I would argue where you've seen a little bit less is more, you know, call it the NASDAQ and the NASDAQ 100 and how highly correlated those to those, you know, call it MAG7 names. And so I think with the 500, you still have enough diversification where there's where there will always be a need. Well, that's always surprised to me. Like the NASDAQ's been in the game for years and years and years. You'd think all this volume and liquidity would flow to the NASDAQ, but it has it. Well, it's, to me, that's a benchmark thing, you know, and I don't know how long ago. You still have the Russell 2000.

That's, you know, a very active benchmark for small caps. And then you have the S&P 500 that's, you know, call it the most active benchmark for large caps. The NASDAQ in a way, you know, kind of lost its way when the 500 started listing all those technology names. Because NASDAQ was always obviously the technology benchmark. But now with so many of those names in the 500, it's kind of, you know. But I can get those plus. Yeah, right. Muddied the waters.

a little bit. Back to your days on the pit. Did you have any thoughts on, did you have like nicknames for Board of Trade guys or Merck guys? Like, what was the inter-exchange competition back then? It was three exchanges back then. Yeah, I don't know if there was, you know. Like corn losers or something.

I don't know if we ever really had that. It was more, you know, the Sebo guys, I would argue, were always the nerds because you were looking at just instead of the Delta One products, It was the first derivative products where you're dealing with all the option Greeks. And it was just always a little, I would say, more going on, more complicated. But we were- Versus the board of trade guys were going to stick their hand in the dirt in Southern Illinois and get a feeling for what the yields were going to be. Exactly. Just different basis for the contracts.

And if you're not watching this on YouTube, you're not going to see my, but you guys all had the sheets in your pockets, right? So where would that come from? Goal minute or Hull, right? So they're giving you all your levels. Yeah, well, the beauty of that is, Hull never had, well, I mean, Hall at one point had sheets, but when we built the trading system,

we were one of, I'll call it two. I would actually argue the other was Timber Hill and, you know, obviously interactive broker that had handhelds that had real-time pricing information going through those. So we didn't actually trade off the sheets. Our values were moving in real-time. time with the upstairs portfolio manager kind of adjusting those. Whereas, yeah, you go to the,

other traditional firms on the floor, Susquehanna, you had Wolverine, CTC, a lot of those firms, everybody was just going through their, their sheets every day, you know, the underlying would move enough or your balls would move enough and you'd have to re-snap them. You'd see the clerks coming in with the stacks. Um, fun fact, uh, when I went to DRW many years later, they're Eurodollar traders. You know, Don, Don cut his teeth. the Euro dollars pit, they, um, the senior trader that ran the desk loved sheets and was very comfortable with sheets. So every day, you know, and we're talking now, fast forward your 2010 and on. I was basically a DRW from 09 through call it end of 18. There was a, you would hear

them every day at the end of the day that's dung, dunk, dunk, dunk, dunk, dunk, don't, and it was the machine that was folding everybody's sheets because they still wanted to use them. So they were still being used as of, uh, call it. like 2018. But I was the clerk looking at the bond option pit, Bond futures options and right back to the Bond futures pit. And I can never forget that look when basically the market went off their sheet. Just this ghostly look of like, oh crap, what do I do now?

Yep. Looking around, somebody get me a new sheet. So you mentioned DRW and Hall. We had a good piece on how Hall's trade in the, because basically the Dow futures predecessor. I'm not going to have the MMI index. Yep. Like he bought some of those on October 87 during the crash at the lows and it basically like created a bid and got the market to come back up.

But talk through a little bit of like your experience in the Chicago prop world, what that has been like, why is that a thing? Why wasn't it a New York thing or did we just kind of brand it differently than New York? Any thoughts? No, I mean, I think it was just different roles, quite frankly. Like you mentioned O'Connor, Hull, you know, like some CRT. a lot of these firms, you know, they, they specialized in reading order flow, how to price that order flow in real time, how to understand, you know, understand managing the inventory associated with trading up and back in that flow. If you look at the banks and even where I ended up at Goldman, you know, they ultimately controlled that end user flow, but it was a slightly different game. You know, they had customers. They needed to provide services to those customers, mainly capital, leverage. whereas the trading firms in Chicago, we, you know, we didn't have customers. And we were solely focused on providing that real-time pricing, managing that inventory.

I would argue, you know, we did it faster to where it worked, you know, tangentially to what the banks were doing. But it was just a slight different nuanced. And so you fast forward, you know, with Goldman buying Hall, I think that's, you know, GS recognized the ability to to pair those two, to take, you know, the pricing and the electronics around pricing and inventory management and kind of dumped that into their customer business that moved a little slower and really saw kind of, you know, the synergies between those two. And then the likes of, you know, the DRWs, the Citadel's, the jumps today, they've just evolved that model and have continued to go and grow faster and faster and more sophisticated and more sophisticated to whereas

is now kind of where banks start and end and those firms start and end, I think, is just much more blurred as the whole market is evolved. But, you know, in the earlier days, you know, we provided a great service to the banks because it was just that real-time fast pricing, whereas they provided the flow and the end users and the capital for all those end users to trade. So, you know, it's always worked pretty well together. Basically, you were the market, you were making a market for them on what they need. needed to get done. But it's also fair to say the prop firms are kind of playing the game within the game. And the New York firms were kind of playing the game of like doing cash flow analysis and like, okay, what's this products? What's this company's product lineup look like? And how are sales and prop firms really didn't give a crap about that? They're just like, what's the flow

look like? How can I play the game within the game to get an edge? That's right. Yeah, which is how quickly can I get, you know, if the flow is one-sided, how quickly can I absorb it, absorb the edge, turn it and try to get it off the sheets. If there was good two-sided flow, either in a product or on a particular day, how can I sit there and just bid-ask, bid-ask, bit-ask, and capture that edge? But yeah, it was a very, very different, you very rarely cared about, I would say, the arguably the fundamentals of the companies themselves. It was more how that flow was interacting with the market, which is always funny when I used to go to even family occasions. You run into old friends and they're like, oh, you're a trader. Tell me what stocks to buy. And I'm like, dude, I don't have a clue what stocks you should buy.

Depends on the hour. Yeah. Yeah. And talk a little bit. When you were at Hull and then at DRW was there still the model. Like the old Chicago prop trading model was find a talented guy, girl, come in, put up some money. we'll give you half the profits, $6,000,000 the profits, whatever. Like, did you see that model?

And do you think that model still exists? Seems like that has gone away in the current regime, kind of. It still exists. I think it also depends on the asset class you're trading. For some of the asset classes, when you get into SPX and as they grow to the dollars we're talking about, you need a team to be able to support that. You may have your head trader that's sitting there running the book. But it's a lot harder to take a bunch of little sole props and kind of back them

and be able to compete in that space. Now, there's other products and other asset classes where I think that still exists today and will continue to exist because it's just not the sheer size of the market that you need the infrastructure for. So, yeah, as far as I know, there's still businesses within the firms you mentioned that are kind of those supported businesses. It's just some of them have evolved to just needing a bigger footprint to be able to compete. And then talk a little bit about, right, the market makers, the Citadels of the world, get a little bit. little bit of a bad rap at times of like, oh, they're buying the order flow and it's nefarious and all this of like, no, they're also providing a service. Like without them, what would it look like, I guess? That's right. Yeah, I think, well, a lot of that is how market structure has evolved over time, right?

And so when you start to introduce free retail trading, there has to be a way to drive value to making those markets. And it used to be kind of fee-based, and now it's not fee-based. So how do you do it? Well, you start to take the fees and put it into the bid-ask spread. And so you pay for that. So it's not really free, which is- That's right. Yeah, it's not really free.

But you aggregate- But people blame, like, the market makers, but they're like, don't blame them. They're just enabling the robin-hands of the world to do that, to operate to you for free. That's right. It's just, it's a different, different sticker, you know, different sticker shock at the bump, the way it's being, you know, kind of wrapped up. But yeah, those aggregators are crucial. Like you need to bundle all of that flow together and you need to allow the market to interact with it.

And I think, you know, Citadel is obviously very successful in doing that and understanding the market structure and how to, you know, best create the environment that the customers need and the flow that they need. And in turn, keep it in a profitable way that they can continue to support the business. Because ultimately, you know, people hate it. to hear it, but like unless every, unless all the different pieces are making money, then they don't stick around and are able to provide that service. So kind of everybody needs to be able to make some money in the process. Yeah, and talk through that for a minute. If you could have like COVID, I guess I'll throw out there and Vicks-Mageddon, we'll say,

but a few of these periods where the market maker, and that's a big fear now, like when these market makers become so big and they're such a big part of the, what happens when they step back, right? If they put their hands in their pocket, is there no liquidity, is the market should kind of gunk up. What are your thoughts on how that all operates? Definitely change the dynamic. Obviously, over my time, just interacting with the SPX and seeing how many different market-making firms there were, you know, 25 years ago were in the pit. And now where it started to consolidate into the bigger firms, yeah, you run a little bit of a

concentration risk when it comes to liquidity formation. It's something we at the exchange are paying attention to every day and trying to make sure that we're making the right to from a market structure standpoint and from a platform standpoint to incentivize as much competition as possible. So yeah, it's something we watch. And then as you point out, when there's certain market, you know, call it moves or situations where flow becomes very, very one-sided, you run that risk that a few guys step out from the market and it just has bigger gap moves. And so, yeah, I don't think there's a there's a great answer for that because you still need the economy, you know, like you need these big firms to be able to scale. At the same point, you want as much competition as possible. And I think the exchange is just trying to balance those two. But, and I would argue you guys have done a heck of a job. And all the exchanges of like,

we haven't seen a really nasty, I'll leave out LME and the nickel. But besides that, we haven't seen an exchange get into big liquidity issue. Like the, these are big liquid products and they remain so even during crashes. Like, you can quibble about like, hey, The spread went from super tight to somewhat tight or even wide, but still there's a spread. Still you can get done what you need to get done. Well, we've gotten lucky. You know, when Zero DTE first entered the kind of picture, you know, people were very afraid of that one-sided move and increased volatility in the product. And arguably, you know, like the first customers that moved into Zero DTE were all call it retail-based customers.

Over time, though, the balance we've seen in some of these products is great to see. So zero DTE today is very balanced. It's about 50-50 institutional to retail. It's very balanced in spread trading versus outright buys. Very, very small percentage of the flow is naked selling of options. I think it's under 5% right now. And so that balance to me is what's creating the market structure that will not have the big crash that you're talking about, that you have so many kind of differing strategies that allow them all to interact, create a really strong liquid market because there's different strategies using the product for different reasons. And the balance between institutional and retail just helps to solidify it against some of those moves that you're referencing.

You mentioned you guys buying bats and you've mentioned the floor a few times. Like, let's talk about there still is a floor, which is different than some of the other places across the street. So talk about all that, like from floor to electronic to global, not just in Chicago. Yeah, well, you know, I will say SIBO and I didn't work for the exchange at the time, but SIBO was pretty brilliant in their hybrid model and kind of creating the ability for the electronic market to work. to work side by side with the open outcry market and allow customers to kind of have that best of both worlds situation. It's the same actual product,

like where's trade kind of separated. You have Globex, you have this. Right. Same product sitting side by side. You can trade them in parallel. And an interesting fact, you know, over time, the percentage of flow that's trading electronic versus open outcry has definitely migrated to electronic.

That isn't because the floor. volumes are going down. The floor volumes have more held constant, but it's just the electronic volume, especially with zero DTE, have just skyrocketed. But right now, call it, I think, around 80, between 80 and 85 percent of the SPX flow trades electronically against about, call it, you know, 15 to 20 percent trading in open outcry. However, 58 percent of the notional value traded in SPX trades on the floor, which is, kind of a wild thought. Yeah.

Like 85% of the flows trading electronically, but call it that 15% of the flow represents 58% of the notional. So it's just large trades, large risk transfers. You can imagine with those large risk transfers, they can be somewhat complex. And there's still a place for that high touch interaction with a broker. Like, hey, can you quote me this? Oh, wait, I want to change this leg into this leg. Oh, in some situations, oh, you know, I lifted.

this and I actually had the wrong month. Can I, can I get out of this and quote this? Like, all that electronically is a nightmare. Once you click and send enter on that order, it's out there. You're not getting it back. And if you interact with somebody, there's nobody to call or look at to say, hey, will you, will you bust this and trade this? So a lot of times with these larger risk transfers, having that high touch interaction with the floor is still very much, not only valued, just demand it. They need it. We saw that in COVID. You had mentioned COVID. When we had, had to close the trading floor. The first time we ever had to close the trading floor,

but the markets were open. We've had to close the overall market we had to close like Hurricane C and-N-11. Yeah. But this we had to close while the market was still open. And some of that kind of liquidity and price discovery went awry because we didn't have the floor. You didn't have those markets you could call down to.

You didn't have the ability for the large risk transfer, especially during a high-val scenario like COVID, when we didn't know what was going to happen. The floor still, you know, to this day, provides a massive amount of value. And SIBO has always taken the stance because people ask, like, oh, when are you going to migrate to electronic? And like, as long as there's value being had down there, we will continue to support having the floor. And if anything, I would argue, we've recently started investing in it more and more. We just signed a contract with CNBC where they're now doing live broadcasts from the SIBO floor.

Because it's an environment, like you're even talking about, it's environment people love to see. They love to know what's going down there. It's energetic. It makes you feel as a retail investor, you're not getting taken advantage of it. There's actual stuff happening there. That's right. Yeah. Yeah.

Rick Santelli's always over there now, right? Mm-hmm. Yeah. Yeah, Rick's down there. CNBC just hired new broadcaster, Oliver Redrick. I think he came from the Schwab Network or one of those other networks. And he's been great. But, yeah, we're just starting to ramp up broadcast.

but we're excited to have that relationship. And then is it also a problem of like you, I guess it could be coded, but at some point you're like, we can't code every possible option order, change, everything like into an electronic system. Like it's just too much.

And maybe if you could, it'd be too hard to even navigate the platform. It's, yeah, it's tough. I think our par stations down on the floor can handle up to 100 legs of an order. I'm not sure what the electronic limitation is.

but even if you had to try to put a hundred legs into an electronic ticket. No, you're having to manage it. Yeah. Yeah. The floor is just a much, much better way to manage those high kind of complex trades. So far, until the AI takes over. Well, yeah, you never know when that's going to change. What's next for you guys?

Anything big product-wise on the, or just keep doing what you're doing? I think it's an extension of what we do today. You know, we're very interesting. in the prediction space. Obviously, in many regards, I think VIX was one of the first prediction tools. So moving into that space, we've talked about introducing binaries on the S&P, which will be coming out June 15th. We want to follow that up with looking into how you trade KPIs on individual companies. So things like the number of cars, Tesla delivers.

We view those one as, you know, those are securities. And even though they're trading on some of these platforms like Kalshi and Polymarket, that they need to trade on a securities venue because they're directly tied to the performance of a security. So we've been pretty vocal in that. So we want to give the market an ability to trade those on a securities platform and try listing them.

And I think of them kind of like this. If you have, you know, if you have KPIs that you can launch and you look at things like number of cars that Tesla delivers, that's a valuation point or a data point. That'll go into a company's EPS and revenue. The EPS and revenue go into the same. stock price, stock price goes into the sector price, sector price goes into the index price.

And now, you know, you can come to CBO and kind of trade the entire valuation chain. And that's kind of like where our minds are. And we're trying to figure out how best to bring that to retail and institutions alike. I just click to my mind, like, if that's a super important KPI to me, if I think that's what drives a whole stock price, that's what I want to trade. Yeah. Or take that out, take that risk out. Right.

Think about spreading those types of things. If I think about SIBO in particular, in our public stock, you know, you have metrics like index, you know, prop volumes that obviously drive our revenue. You also have multilist in our multi-list market share. Well, maybe there's a day where somebody based on their risk exposure to SIBO wants to go short index and long multilist or vice versa. And so having those components to be able to trade like that, I think can be super valuable to kind of those end users. And you can even think of institutional applications to where, like, I think of something as complex as like a dispersion trade where you're taking all the individual name balls traded against the index. Well, what if now you started taking all the individual name components traded against the name itself or something along those lines? I think it starts to introduce a lot of interesting relationships and ways to manage risk.

I'll let you choose your own adventure of, I want to talk sports, food, or? touristy stuff. Ooh. Well, sports is pretty topical right now. I think over the weekend with the whole, yeah, exactly. That's what I was saying. With the board vote on moving to Indiana, I don't know how, I'm still not sure how I feel about that at the moment.

Don't you think it's still just a smokescreen? They're just doing everything they can to put the... You know, I hope that's the case. But in the past, like, some of those market events, I would argue, you know, the first election with Trump, Brexit. You just kind of never really thought it was going to happen. Yeah, until it happened. You wake up and, oh, it happened.

So I'm nervous that this is a similar situation where, yeah, I just kind of keep sitting here not believing it. And like, oh, there's a loophole. They'll find a way out until the morning I wake up and I have to drive to Indiana to see a game. And of course, right when we're good, and we have all this hope and got, Caleb, everything's happening. And we're like, oh, we're moving to Indiana. Like, what?

Exactly. I know. You idiots. That's your favorite sporting? event to go to or you, Cubs or socks or what? I grew up, well, I grew up with a father. It was a Sox fan, but I ultimately was a Cubs fan. There you go.

I, uh, yeah, obviously, Riggily, I consider the largest beer garden in Chicago, so I love going to games there. Been, been a Bears fan. I get, you know, probably the sporting events I love to go in the most were Blackhawks games. Um, so hopefully they can, they're on the upswing now. They keep getting a lot of young talent, and hopefully we can turn that around and go back to the days of glory back with Caner and Tays. Let's hope.

My quick story, the out of Bears game, the most Chicago thing ever, there's a guy like three seats down. It was cold as could be. He like reaches over. He taps me. He's like, want pork chop? Like, excuse me? He's like, do you want a pork job? I'm like, sure.

He reaches out of his jacket and has a pork chop wrapped in tinfoil, hands it down to me. It's still warm. That's outstanding. And you're just gnawing on a pork chop there at the Bears game. Yeah, there's certain things in life that you got to experience. And, yeah, the Bears game in the freezing cold is something that everybody should experience. And if you're lucky enough to sit next to the Porkchop guy, it's just that much better. I hear you.

And then throw out a quick, you guys still do tours of the floor, right? We do. So any listeners, like, go see it. You're saying it's not going to go in any way any. time soon, but we didn't think the bears would move to Indiana either. So go see it before it's potentially gone. Yeah, we are going through right now. It was part

of the CNBC deal, a complete new buildout of our customer experience center. And so I think it'll be ready more towards the end of this year, early next year. So right now, tours are kind of on hold because there's construction down there right now. We've ripped apart kind of the whole

eighth floor viewing room and we're building out a whole new experience center that we can hopefully bring to Chicago and get a lot of, you know, a lot more foot traffic up there to see what floor trading is all about. And then your co-worker, Mandy Zoo, is coming on after you here to talk Vicks and volatility in particular. Give us a quick pitch on Mandy. Oh my God, Mandy's the best. We were so lucky to get her, you know, derivative strategist that came over from Credit Suisse, long time industry expert, super well regarded. I think,

the way she breaks down some of the data into really digestible understandings of what's going on and how that flow is interacting in the market, you know, she's second to none when it comes to doing that. So it'll be a real treat. I would say, get into the weeds with her. You can't stump her. She is brilliant when it comes to that stuff. That's awesome. All right, Rob, thanks so much. All right, everybody. We're here with Mandy Zoo. Mandy, how are you? Good. Thanks for having me, Jeff. Thanks for coming on. You're here in Chicago Month, and I was like, great.

I've always wanted to have Mandy on. She's in Chicago. She works for the CBOE. It'll be perfect. And then they're like, no, wait, she's in New York. I'm like, oh, man. Chicago's spirit, yeah. Exactly.

We'll ignore that for now. And we'll say, you know, had to have a volatility in VIX expert on during Chicago month since that's where it all started, I think. Yeah, for sure. Give us a quick little background of how you got into this biz and what you do at. And what I'm old school. I call it CBOE, but you guys rebranded and want to call it CBO now, right? That's right, yep.

Okay, I'll try and remember CBO. So how you got into this line of work and what you do at CBO? Sure. So I run the derivatives market intelligence team here at CBO. So my team produces market commentary analysis on themes and trends that we're seeing in the derivatives markets. And as you mentioned before, you know, we're the home of SPX and VIX, all things, you know, options and volatility. So it's been a really great gig. joined Sibo about three years ago. And before that, I spent over a decade, almost 15 years at

Credit Suisse, running derivative strategy. So doing something similar, but from a South Side bank perspective, you know, sitting on the trading desk, you know, writing trade ideas, providing commentary. For me, that, you know, the switch has been actually really good because, as we know, you know, especially in recent years, retail is a bigger and bigger part of the options market. And being at Sibo, you really get kind of a front row seat on that, you know, on that trend. Now, was Credit Suisse XIV in that whole mess, or was that a different? So you were there during that? We were, we were, I was there for, for many, many exciting and maybe not so exciting moments, but yeah. You had a front row seat to that, right? I'm forgetting my

history. Now, was that COVID when it spiked when it got too big? So that was the lead up to Volmogadden, if you will, right? Yeah, yeah, yeah. February of 20, 2018, when the VIX spike more than doubled in a day and then all the kind of two times levered inverse products kind of all blew up as a result. It was an event that was, I would say, much anticipated by the market in the sense that everybody had been tracking kind of the growth in those VIX products and VIX ETNs and saying, look, it's not sustainable at one point. We're going to get a big VIX spike and these products will blow up. But, you know, the question obviously was when that was going to be. So yeah, those were exciting times. Those were great times. And I think,

We'll put, I think we have a blog post on that, maybe a podcast on that back in the day. So we'll put that out in the show notes for everybody. So give us kind of, with that as a backdrop, give us the current state of volatility. Do you see any such issues on the horizon now? So, I mean, right now, I feel like leverage isn't the issue. What is maybe worrying me a little bit is just how consensus the positioning has gotten in terms of the extreme bullishness in the market. So every corner of the options market, whatever you look right now, The theme is just upside chasing through buying of calls.

And this you see from both retail as well as institutional. You see single stock options as well as index options. So a couple of stats that we highlighted in our weekly piece this week. You know, we're seeing almost record call buying activity from retail. I think around two thirds of opening activity from retail investors on our exchange. Right now is bullish in nature. So most of that is buying calls outright. some of that also is selling puts to open.

So both of these trades we consider more bullish. And this is kind of the highest level of bullish activity that we've seen since the peak of the 2021 meme stock era. And then if you kind of step back a little bit and look at the broader market, not just retail, but if you look at, you know, for example, like the put call ratios, hitting extremes that we haven't seen since outside of 2021, the meme stock craze, as well as the late 90s tech bubble. So these are some, you know, when you're making. parallels or we were reaching levels lasting those periods, I think it definitely gives me pause. And then the last thing that I would highlight is, you know, the one difference between now

versus what we saw kind of during the COVID era was in 2021, there was a lot of optimism around like single stocks, right, like mean stocks in particular, and particularly from retail. But on the institutional side, actually, there was quite a bit of risk, like, not risk aversion, but like still a lot of hedging activity going on and on the institutional side. So if you look at like index volatility, index skew, index convexity, all of these risk metrics were actually very high, suggesting actually a lot of hedging activity. Right now we're not seeing any of that. So we're not seeing any demand for puts, measures of skew, convexity, all these measures of downside risk in the market at multi-year lows. So, you know, concern me a little bit in terms of kind of the positioning and the setup in this current moment.

So lots to unpack there, A, or one. And how much do you guys internally, or you personally do you attribute to like Robin Hood and the growth of tech and mobile and all these platforms that allow retail to easily place these option trades? You think that was, was it that enabled the growth in the volume or the volume growth enabled those platforms to exist? Definitely a huge contributor. I would say in terms of, you know, catalyst for this retail boom that we've seen in the past five years, the ease of trading, right, with a, with everything going mobile is certainly a major contributor. The other one that I always flag is just, you know, commissions going to zero, right? So Robin Hood, obviously, in 2019, was the first retail brokerage in the U.S.

to cut commissions to zero, but then soon after, every major brokerage essentially followed. So when you have, you know, ease of trading going up, the cost of trading going down, and then, of course, during COVID, retail investors are having a lot of time on their hands to learn about the market, learn about trading. kind of that's like the perfect storm of getting more people involved and active in the market. And of course, since then, the performance in the market kind of this, you know, this breathtaking bull run that we've been on, you know, 2022 notwithstanding has obviously kind of just add a fuel to the fire. And then on that meme stock, how much credence do you give to that whole back during GameStop during all that?

The market makers had to hedge, right? They were selling the options. They had to hedge. They were, it was kind of a self-reinforcing ladder. up that the market makers had to hedge and buy? Yep. Yeah, definitely. You see that happening?

Do you think that pushes prices artificially higher? So whenever you have such outsized positioning where, you know, customers are all buying options and market makers get massively short options, so short, like the technical term, short gamma, like it certainly can impact the underlying price performance because, you know, if they're hedging with the underlying, when they're short all these options, what it means is they have to hedge in the same direction as the underlying stock moves. So if the stock is going higher, the way, you know, to hedge their option position is to buy more, more stock. So definitely can.

I would say the difference between now versus 2021 was that 2021, this craze was going on around these lesser liquid names, right? Like if you, as you remember, GameStop, AMC, you know, there are a couple of others out there. This time around, this bullish sentiment is really concentrated in the mega-cap tech names, right? So Navidia, Tesla, all the chip stocks. I mean, they have, you know, huge underlying liquidity as well. So, you know, could it have an impact, certainly, but I don't think it's, you know, to the same degree as maybe we had in 2021, where the retail, you know, fervor, if you will,

was really concentrated on these really illiquid names where, you know, the underlying, you know, wasn't really traded a ton. But, you know, when you're talking about Tesla and Navidia, which is some of the most traded names in the world, I would say the option positioning, you know, on the margin can have an impact, but I don't think it's the main, the main, the main thing that is driving these stocks higher.

And then while we're still on the topic a little bit, right, the market makers were made, the boogeyman, so to speak, back then of like nothing's actually free, right? Your Robin Hood commissions aren't free. They're selling your order flow and all that. Do you think that's a bad thing or it's actually, right? Like it can be construed as like they're evil and they're selling this and they're making tons of money off it. But I'm right in the pit.

There were locals. They were filling orders. It wasn't necessarily a nefarious thing. is just how the system works. Yeah, yeah. And I think as long as it's exposed to competition and it's still being executed at fair prices, I think certainly, you know,

the benefit could outweigh the potential cost. On to the VIX, right? CBO, home of the VIX. We've got a VIX white paper we'll put in the show notes too. I think it was Mark Cuban who actually came to, I can't remember the bank,

Goldman or whatever, and wanted to kind of create a variance swap around his position and they said, like, we should make this a product. But is the VIX still as popular as ever? What's your take on the VIX? A lot of people thought zero DTE.

All this is kind of removing some of its validity. What are your thought? Yes, sure. So in terms of popularity, I would say, you know, we're seeing record volumes year after year in the VIX. So definitely it's still more popular today. I would say in terms of a tradable instrument, VIX options specifically I'm looking at.

But in terms of the as an indicator as a benchmark for sentiment, I definitely think it's still relevant. Now, I do think there is some misunderstanding around what exactly the VIX measures, right? So you probably heard the nickname for the VIX, which is the fear barometer or the fear gauge. And we've tried to push back quite a bit on that nickname because we think it's a little misleading in that what the VIX really measures is positioning in the underlying S&P options market. And that can come from both demand for puts as well as demand for calls. And what I think trips people up is that sometimes the VIX is going up, not because, because necessarily there's a huge jump in demand for puts,

but actually demand for calls and bullish sentiment. So being able to disentangle what is exactly driving volatility higher, is it coming from bearish trades or is coming from bullish trade, I think is actually really important. So what we've done actually in the past year is develop what we call a VIX decomposition framework. We have a white paper out on it. We have several videos. We actually have a web portal where we upload this analysis on a daily basis.

but essentially what we'll do is break down the daily change in the VIX into several components that really give you further clarity in terms of the positioning, right? Like how much of the increase in the VIX is coming from an increase in bullish versus bearish positioning and where this kind of really comes into play. And what we have, we highlight this in our paper is if you look, for example, at the two biggest VIX increases of the past, like, say, five years, which is, you know, August of 2024, the yen carry unwind, which, you know, pre-market VIX, to 60, everyone freaked out. And then obviously also post-libration day, the day when S&P sold off 6%.

If you look at those two dates in particular, close to close, the VIX had the same amount of mood, right? It was up 15 points close to close on those two days. So I think to the layman, they would look at this and say, oh, similar amounts of fear in the market, similar amounts of, you know, bearishness, if you will. But when we run the decomposition, what's really interesting is that in August of 2020, for that increase, that demand and increase in the VIX was almost entirely coming from demand for puts. People were selling calls and buying puts and hedging in the market and there was a lot of fear out there. But post-liberation day that April 2025 sell off in the market was actually the opposite. The biggest increase was coming from the call side. It was actually

people coming in buying upside calls kind of playing for a reversal in the tariff policy. You know, what we've now kind of termed the taco trade, you saw that in the beginning of April of last year. And if you just looked at the headline VIX number, I think you would have missed the bigger story. So this is something that we're trying to do is just provide more clarity and more transparency into what is exactly driving the VIX. And I think that will hopefully help inform trading decisions better. I love that because the classic example was always just back. Oh, in 99, the market was screaming so high that Vol was actually increasing while the market was rising without any real stats. I've done that.

A lot of people I know just point to that of like, oh, there was a time versus now you're saying it's happening multiple times a year, right? Yeah, I think people get exactly to a point. Like the times when we get the most inbound, I would say increase around like what's going on with the VIX. The first would be, you know, exactly what you point out. It's like when the market's going up and the VIX is going up or markets going down and VIX is going down because typically you would expect that. that negative correlation, but actually 20% of the time the two move together. So SPX and VIX move in the same direction. So being able to actually explain why that is, I think is important to help people understand exactly what drives the VIX. And then the other kind of case where we get

a lot of questions is when VIX either underreacts or overreacts. So obviously in August of 2024, we got a lot of inbound because, you know, pre-market, VIX was up to 60. You know, that was considered like overreaction in the market. So people wanted to know exactly why. that is. And that's why, you know, we decided to run this decomposition and create this decomposition to really help people understand what is the underlying positioning in the SPX market that is driving the VIX number. And then what, what do you give any credence to zero DTE and all this massive buffered notes and call overwriting all this stuff? Dampening the VIC artificially suppressing the volatility or not so much? Yeah, sure. That's a great

question, a popular one that we get. So zero DT, I would say no, and only because the VIX is actually not, like, touching any part of that part of the curve, right? VIX is one month. It's a forward-looking 30-day expected volatility in S&P, so actually doesn't look at the flow that's happening in the zero-day. But we do get a lot of questions around, you know, the rise in the buffered ETFs, the option income ETFs, all the VOL selling that we see going on right now is that dampening the VIX. And I would say, on the margin, perhaps, yes, right? But I don't think it's the overwhelming or the dominant factor that is driving the VIX lower. And a couple of reasons for that. So first, if you look at what is going on in equity volatility, in the VIX, is very commensurate with what we're seeing in other

asset classes, right, with credit volatility, with FX volatility, rates volatility. So to me, that's much more tells me it's more of a macro fundamental story rather than a positioning story. And the second thing is, you know, if you look at just like the S&P volatility surface, if you think what is really driving volatility lower is just the incredible amount of money that is in these coal overriding ETFs, if you will, you would expect, for example, like S&P call skew to be very, very low, meaning the out of the money calls to be very cheap because that's, you know, where all the selling pressure is. But in fact, as I mentioned earlier, like we're actually seeing the opposite, that the calls are really

bid. And that tells you that, you know, the market is very liquid. there are many different participants in the market. Yes, we have this, you know, huge community of call-a-riders, volse sellers out there, but we also have a lot of investors, retail institutional, tactical players out there kind of buying those upset calls in the market. So no one, you know, investor type is the dominant.

It's really kind of speaks to the, the depth of the market and just how big and liquid the S&P market has gotten, that, you know, no one investor type is, overwhelming relative to any other. Do you internally and personally look at is the tail wagging the dog kind of concept, right? Can the derivative, can the options get so big that it starts moving the underlying and then you have this weird like circular, the snake eating its own tail kind of a thing? Yeah.

That's a fair question and definitely one that we've gotten out a lot. So two things. I would say the majority of the growth on the option side that we've seen in recent years have all come from the zero DTE part of the car. right, the same day options trading, which now is over 60% of the SPX volume on any given day. And a lot of people look at that and the growth in that and think that, you know, think that, you know, could this be having an impact on the underlying market? And one of the things that we've been noting and actually published pretty extensively on

is that the positioning in the zero DTE market in SPX is very different from like non-ZODTE options and that it is very balanced between buyers and sellers. So I think the preconception or the misconception that people had initially was that people were mostly using these zero-d-tie options for speculative purposes. So investors were mostly buying these options. Market makers were short these options and therefore the hedging and the underlying, you know, these options could become kind of overwhelming to the broader market. And what we've kind of shown is that for both retail and institutional investors, you actually get a decent split between people who are using it for, you know, hedging or speculative purposes. and as well as investors who are using it for income for selling options.

And the way they're selling these options are typically through spreads or iron condors are like very capped in terms of the risk. But that's something that, you know, I think kind of helps to address the fear of the options market having an impact on the underlying. And the other trend that we've noted is just, you know, more and more people shifting their trading away from futures towards options, just given the liquidity and the depth that we're seeing, particularly on these zero DTEs. side. And that's my theory on the VIX that if you, yes, the timeframes don't line up, but if you

have people moving from the 30-day options to the zero DT, right there, like, hey, I can better, I'd rather sell these daily now instead of selling them every month or every quarter. So you kind of move some of that volume and create this bubble in between those two exposures. Yeah, so certainly I would say the zero-d-te as a share has, you know, obviously exploded in terms of popularity. Like I mentioned, and it's now 60% of the overall volume. But I think what gets missed in that is that the pie, overall pie, is also a lot bigger. So if you actually just look at absolute volumes of, like, say, 30-day options or, like, non-Z0-D-T options, it's also increased over the past five years.

It's just nowhere near at the pace that we're seeing in the zero-d-te size. So, yeah, but, you know, that is a fair point. Where do you see for-profit exchange? Or they say, hey, let's do six-hour options and hourly, right? Do they just keep going down in time frame, be like, hey, it's more and more product? Certainly. I mean, certainly could happen. I would say, you know, from the CBO's perspective, our focus right now is actually in bringing

more and more investors into the options ecosystem. So we talked a lot about, you know, retail trading zero DTE. But what we find is actually the retail investors are active in zero DT options tend to be actually very sophisticated. And the universe of traders and investors who don't even look at options right now. is obviously much bigger than the universe of investors who are actively trading zero DTE. So what we want to do is really educate those investors who are not currently using options on some of the benefits of options trading. And doing that by making it simpler.

So one of the things that we're launching actually later this month is binary options on XSP, on mini SPX contract. So simple yes, no, right? Like will the S&P be above this level at the end of the day? Yes, no. So it's kind of like the prediction market. if you will and bring that to S&P. And I think the appeal of that for retail investors who's not currently trading options

is that you don't have to learn about puts in calls and strike prices and Delta, Vega, Gamma, or any of the other, you know, more complicated things. It's just getting them interested in the market. You know, what is the S&P going to do? And then what we find is that when investors become more active trading, more active in following the market, they will naturally want to learn more about other products out there

And hopefully they'll learn, this would be the start of a journey in terms of learning about options and getting more investors interested in trading options. Switching gears to the SPX, right? How is it withheld this long, right? I could have seen a scenario where the NASDAQ took over many years ago and all these things, but the SPX is still where the entire world comes to hedge. Yes. And it just seems with the concentration, with everything that's going on, it would become less and less so. But why has it not been unseated as the king there? I think the diversity of kind of market participants that we have, we're able to involve, obviously, institutional, but also retail the growth.

I mean, a lot of people look at the kind of the explosion at SPX volume in recent years and attribute this to zero DTE. And I strongly pushed back against that narrative because I don't think it's because of a product that we're successful in terms of SPX. If you look at, for example, SPX volumes versus Eurostocks, right? like in the benchmark for European markets, you know, our volume is up 5X versus 2020. Your stock's volumes is flat. And they have zero DTE as well. So that's my point. Zero DT.

Having a specific product is not a guarantee that people will start actually trading it. What you really need is a diversity of market participants that really brings that liquidity to the ecosystem. And that's what we've done, I think, particularly successfully in the U.S. And I would say particularly successfully around SPX is get that. retail involvement in SPX options trading with the success of zero DTE options and kind of teaching retail investors of different use cases for options. It's not just to speculate on where the market is going to go, but actually about half the flow that we're seeing from retail in zero DTE is complex trades where, you know, they're selling spreads, vertical spreads,

on condors, butterflies, et cetera, for income generation. So I think this is, you know, part of the, you know, what's making SPX so successful in recent years. But it's, but, but, but, right they to me I'd be like I'm just going to trade invidia or apple or one one of the single names instead of the SPX or you have all the foreign European or right per year stats there they're hedging their euro stocks with the SPX so they're they're they're taking on that basis risk voluntarily which has always been odd to me yeah but the liquidity outweighs the basis risk I guess is what you're saying exactly exactly yeah but yet to a point about like you know the single stock risk relative to kind of of the benchmark, the SPX. That's definitely, I would say right now, top of mind for a lot of investors. And what we're seeing in the market is while broader S&P volatility has fallen, like single stock volatility has not. And in fact, if you look at our VIX EQ index, which is our VIX for single stocks, right, is the average volatility for the top 80 names in the S&P, that is actually at a one year high right now, higher than it was in the peak of the March sell-off. So a lot of volatility

going on at the single stock level, but it hasn't really translated to higher VIX or higher index volatility because of the incredible amount of dispersion or low correlation that we've seen. These stocks are moving on idiosyncratic factors, people picking out like the AI winners and losers. People are, the stocks are moving on earning. So these are like fundamental risk factors that are driving the market right now, not so much like the broader macro. So I think, you know, whenever macro fears resurface, I certainly would expect, you know, more volume going to the index. side. But right now, I think a lot of people are looking at these, you know, single names and looking at single stock options to express some of those risk factors. And so that's long,

the dispersion trade? You deal with a lot of institutionalers or who are basically buying that dispersion trade all day long. Yes. I mean, it says trade has done incredibly well. Now, the question is, of course, is the entry point now and then the kind of outlook going forward, are you going to get rewarded going into this trade today. And I'm more actually inclined to take the other side because essentially what you're doing when you're going long single stocks. So going going long dispersion is you're buying single stock volatility or selling index volatility. And that spreads already at a record high. So you're buying something at a record high hoping that it goes higher. It could play out. I just, you know, I feel like the setup right now at this point in terms of

entry level is not compelling. But certainly it's a trade that has worked really well over the past, let's call it three, four years for people who've, you know, been in this trade, got in at better entry levels. It's carried incredibly well because of what we've seen with the AI trade. What's your quick thoughts on the AI trade? Like to me, the winners will become, right, it's going to concentrate on a few big winners, which will keep driving that concentration at the top of the index and maybe keep driving the dispersion trade. So who knows? I think it's going to be a winner-take-all kind of market, and which is why you're seeing that incredible demand at the single stock level for optionality. People want exposure to those names that they think

are going to be the winners in this AI race. You know, my thoughts are in terms of kind of where it's going or kind of the impact on the market is right now that is the focus. And I think maybe the underpriced risk, if you will, is the more on the macro side. So everyone right now is kind of dismissing the geopolitical backdrop, dismissing kind of any of the macro concerns out there and saying that this is an AI market and will remain an AI-driven market for the foreseeable future. And yeah, $100 oil be damned, right? Exactly. And then the risk is that if we have extended, you know, period of high oil prices, really dampening,

kind of consumer sentiment, consumer spending, you know, you could start to get a environment where stocks all off together, which, you know, has to happen a while, but, you know, it could happen certainly if we end up in a more macro-driven environment. And that is, I would say, the underpriced risk in the market with correlation levels right now at historic lows. And then one of your recent research pieces was on the bond stock bond correlation that has continued to be terrible in many investors eyes, I guess you would put it. So give us a little bit on that. And then I want to ask how you come up with these great research pieces. But tell us a little bit about that last one.

Yeah, I mean, the breakdown in the stock bond correlation, it's not new. You know, sort of really happening post-COVID 2020 with the Fed hiking rates. And really historically, if you look at, you know, what really drives that stock bond correlation, it's around inflation, right? So in periods of high inflation, that correlation goes negative. When periods where disinflation or low inflation is the dominant risk factor, then that, sorry, that the other way around it. That correlation goes negative in the other ways. But essentially what it means is that in high inflation periods, fixed income no longer effectively hedges your equity risk. And that is obviously a huge deal for any multi-asset portfolio.

manager for anyone who's relying on your traditional 6040. And of course, with oil prices kind of back at the highs now, you know, inflation is, again, a key risk factor. So what we've seen this year is that, you know, correlation continued to break down. I would say, you know, in terms of how investors have been navigating this changing paradigm of equity bond correlation, I would say the rise in the option-based ETFs is actually a consequence of this breakdown in correlation, because people are looking at more reliable, like alternative hedges and more reliable hedges. And I would say option-based hedges are one solution, right? Because as we know with an option-contractually, right, it pays out contractually based on the price of the underlying. So there is no historical

correlation. There's no scenario where SPX sells off and your SPX put doesn't pay off. So I think people are looking at option-based hedges, but the key here with option-based ETF is that they've simplified this process. So for a typical investor, who, who may not know much about put calls, may not know much about strike prices, how do you roll your hedge, what type of hedge should be implementing. Right now, they can access all of that via just a ticker, right? So, you know, with the feedback that we've heard from, you know, end investors from RIAs who've kind of allocated to these strategies to these ETFs is that, you know, they say, this is as easy as buying Apple or buying spy, right? Now, like, access to an option-based strategy

has become a lot easier. So I think the ETF wrapper, combined with kind of the macro environment where correlation between stocks and bonds have broken down have kind of created this perfect storm, if you will, for the rise of these strategies. I could argue that the rise of those strategies and private credit and alternative income, all that is dampen the demand for bonds and caused issues on that side. And then give me a quick thing, how do you come up with these great research pieces? Is it all you there in your- No, no, that's a team.

You got a whole team? Yeah, no, wait, no, it's, it's, Great. No, we definitely team effort. And I think what's been great being at the CBO is just the incredible amount of data that we have. So I work very closely with our data analytics team. We're very closely with the CBO Labs, which is our product innovation team, as well as our sales, sales and marketing folks as well to kind of gauge, package kind of the data that we have into, you know, things that are relevant for the end customer. And then also, you're working closely with sales in terms of taking the temperature of like what clients are actually interested in, what is resonating with, with, with, with, customers. So it's definitely a team effort, not just a one-person effort. But in terms of the derivatives market intelligence team, we have three folks based here in New York and one person based in APAC. So we are international. And that is another theme that, you know, we're seeing at SIBO is just international demand to trade U.S. products. You guys putting an AI layer on all that data to like, of course. Put insights out to, yeah. No, no, I would say AI has been

a great productivity tool, definitely. But in terms of the actual writing, it's still, that is still human-driven right now, but I'm sure, you know, if you ask me again next year, maybe it would be all AI. I just want it to be like, hey, find some cool thing for me to talk about. Hit a button and it's like, here's 10 cool things in the data. Then I'll actually do the writing, but help me find it. I think eventually you'll get there. I don't know if it's quite there yet, but I think eventually you'll get there. Yeah. So you're here in Chicago Month and sitting there in New York. So we got to do a little Chicago versus New York debate. So we'll start with pizza.

Chicago and New York. What's your vote? New York. Hands down. Come on. Well, first, let's preface. You're in Chicago probably quite often with headquarters here, right? So you know what you're talking about from both sides of the aisle?

I like deep dish, you know, Chicago style pizza, but in terms of, you know, what I prefer, it would be definitely the New York slice. I unfortunately have to agree with you on this one. But have you ever been to Piquads when you're in Chicago? I don't think so. All right. Next time you're here, go to Piquads. It might change your mind. Okay.

All right, better looking city. Oh. So I would say New York. The New York skyline is iconic. Okay. Here's my debate with you here. We have alleys where we put our trash bags. Yes, I know.

You guys just have your trash. There's like a $10 million condo up there and you just have trash bags right in front of the entrance. So I'm going to say no. that's Chicago all day. The Cleaning, definitely, is not where it should be, but the New York skyline, central park, I mean, it's iconic. It's hard to paint.

Better city will go season by season. Better city in the summer. Oh, I see. Okay. I would say also, I'll save you time. I'll say, I'll say New York for every season except for summer, exactly to the point that you made. It's the smell of all that garbage sitting on the sidewalk when it's 100 degrees outside.

Yeah, it's not the most pleasant time to be walking around in New York. It makes it that much hotter, right? Yeah, exactly. I would agree. I think spring, I got to say Chicago, too. I'm going to go summer and spring. I'll give you fall and winter. Yeah, no, the winter definitely is New York, although we've had a pretty brutal winter this past winter.

But, yeah, generally speaking, it's a lot better. Better sports, which is tough because your team's in the NBA finals, right as we're recording. Yeah. Better sports city. I mean, I say exactly to a point. As we're sitting here recording, this is game one of the NBA finals. I got to go to New York. But that's really subjective.

You have the Mets and the Jets, which is almost disqualifying, right? Like, they haven't won anything. Hey, I live in Queens. I got to stick up for the Mets. But yes, they've been on an historic losing run. Yeah. And then overall food scene. Oh, New York.

Foodie or no? I love. Yeah. That to me is no doubt, New York. I mean, Chicago's a sneaky underdog there. We got great restaurant. I think the diversity of cuisines and food that we have and just like, yeah, I would say New York for this one, for sure. That's probably a good answer.

All right, Mandy, we'll leave it there. Thanks so much for coming on. Yeah, thanks for having me. It's been a pleasure. Okay, that's it for the pod. Thanks to Rob, thanks to Mandy, thanks Jeff Berger for producing, thanks RCM for sponsoring.

Make sure you go check out the new website. We'll be back next week with a surprise guest to wrap up Chicago Month. See you then. Peace. You've been listening to The Deriv. Links from this episode

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