The Derivative - NASDAQ 100, Options & Volatility: 0DTE, Tail Hedges, Structured Products — with Kevin Davitt & Nicholas Smith

Episode Date: September 25, 2025

In this lively episode of The Derivative, Jeff Malec sits down with NASDAQ's Kevin Davitt and Nicholas Smith for a deep dive into the wild world of index options, with a special focus on the NASDAQ 100. These guys break down everything from the evolution of options trading to why the NASDAQ 100 is becoming the cool kid on the financial block. Kevin and Nick bring their A-game, unpacking the index's unique volatility, global revenue streams, and why younger investors are totally crushing on this benchmark. They don't hold back, diving into spicy topics like AI's market impact, the rise of zero-day options trading, and how derivative strategies are getting seriously sophisticated. You'll hear insider perspectives on tech trends, market dynamics, and why the NASDAQ 100 might just be the future of investing. It's part finance lesson, part crystal ball gazing, and totally packed with insights that'll make you sound smart at your next happy hour. Whether you're a trading pro or just finance-curious, this episode is your backstage pass to understanding how index options are reshaping the financial landscape in real-time. SEND IT!Chapters:00:00-01:16= Intro01:17-08:41= The Evolution of Markets: From Finches to Finance08:42-27:01=NASDAQ 100: The Global Tech Index Reshaping Investment Landscapes27:02-38:24=Options Mechanics: Notional Exposure, Tail Risks, and Market Sophistication38:25-56:30=The Rise of Zero-Day Options and Market Innovation56:31-01:12:09= AI, Market Evolution, and the Future of Global Investing01:12:10-01:22:31= Global Market Dynamics: NASDAQ's International Expansion and Future OutlookFrom the episode:After the Trade is Made (Book)General Cashington shorts (youtube shorts)Nasdaq-100 Index Options News_____________________________________Nicholas Don't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, 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

My belief is that, like, at the index level, the NASDAQ 100 is coming to reflect the state of the global economy best in 2025 and beyond. The risk management tools that we sort of catering day after day will grow naturally, and they have today. Welcome to the Derivative by RCSM Alternatives. Send it. Hi, this is Nick. I'm Kevin. And we're here to talk about index options on the derivative. Hey, guys. How are you?

I'm great. I'll start there. I'm doing really well. Thank you for having us on, Jeff. Yeah. I'm doing fabulous. Thanks, Jeff. Thanks for having us. And where is everyone?

I know Kevin lives somewhat near me here, Chicago. Yeah. I am. I'm in Evanston, not far from you. Love it. And contrary to my accent, I am based in Manhattan, South, better known as Miami. That is becoming more and more of a thing, right? Are there too many?

Is it getting to be too many finance folks down there? Never had too many finance folks. I never say that. But indeed, when I turned up to Miami back in the dark age of 2018, I think the finance scene here could best be described as parochial with a handful of hedge funds. And now it's flourishing with a lot more sophisticated derivatives users

and, you know, the market is moving accordingly. So, yeah, we're enjoying the influx and it's creating some interesting conversations down here for me. Some good happy hours to go to, for sure. Did the proper derivatives guys have to battle it out with the crypto bros? I think they hang out of different bars, honestly. I really do. Love it.

All right. So we've got the heads of index option sales and content here. So we can basically talk anything and everything index options, which is exciting. I want to start with Kevin, who gave a little bit. We had an event in Philly a while back. And Kevin gave a eloquent. Was it eloquent? It was something, but it was well thought out kind of the evolution,

how options evolution ties in with human evolution and societal evolution, from what I recall. Kevin, do you have some, can you recount some of that for us? A little recap. I guess just to set the stage a little bit, when I think about like my role and content generally, I think there's sort of a bifurcated market. I think there's a great deal of content.

A lot of it, you put out that is very, very tailored for high-end and institutional end users. And the groups that RCM works with, that many of them also work with NASDAQ, eat that up. And then there is a great deal of content that goes out through different types of channels that I would say generally panders too low. And when I'm talking about that, I mean like the get rich quick stuff and really the

things that do not properly explain the risk inherent in any market. And so I try to do something slightly different and to give the markets that we operate in, which there is of course complexity, a bit of approachability to, you know, that huge array there. I think there's a fat middle. And I try to give interesting spins whenever possible. And so that was something I tried to do with the Philly event. There are plenty of situations where I know I'm not going to be the smartest guy in the room. But if you can frame a conversation and then allow that dialogue to happen, which hopefully we're doing today, I think really interesting stuff happens. So my thinking there was about evolution broadly.

And, you know, this is the type of stuff that happens when you're walking the dog or whatever, taking a shower. And so conceptually, that's something that Nick's British brethren Darwin came up with in the middle of the 19th century. Nothing new. But then I think it applies like much more broadly than Finches and the Galenches and the Galilee. Lopagos or like giraffes with longer necks. And I think there are very, very meaningful parallels between life broadly and markets generally. And I think that's why so many people find them compelling. There's complexity.

There's ups and downs to both. And there's systems where a whole bunch of different actors come together. And so my sort of thinking there was that humans are capable of amazing, Adaptation. And I gave an example that most certainly wouldn't be typically brought up in a derivative kind of focused conversation. But just the fact that we're as fetuses in, what are we in, whatever that pot is. And our lungs are wet, but we're able to bleed through an umbilical cord. What's that? In the uterus? Yes. Yes. That's right. Men, men talking gestation now. In the first three minutes of the pod. We're nailing it today, folks. Yeah, we are. Anyway, like, seconds after we're born, we adapt and we're able to breathe the way we are right now.

And this stuff we take for granted, but then I think about markets and I think about the tremendous evolution that's happened in the, let's call it, 25 years both of us have been in this business. Tremendous evolution. and I think about volatility in the context of what we do, but I also think that change is constant in life, and that's a little cliche, but again, another parallel with markets. And so if that's the case,

then we're talking about like rates of change and we're talking about technology and we're talking about transactions happening. And like, just so I don't get too long-winded, if I bring it all back home, my belief is that like at the index level, the NASDAQ 100 is coming to reflect the state of the global economy best in in 2025 and beyond. And I work with the likes of Nick to help drive sticky assets into that headline index or vehicles designed to track it like futures.

And then I think as a direct sort of descendant of that, the risk management tools that we sort of, of catering day after day will grow naturally, and they have today. So is your team responsible for those ads like during March Madness, where the ladies like, oh, and the AI and everything's inside of this, or is that a QQQQ product commercial? That's a good question. And so that is Invesco-driven. We have a very, very meaningful. When I say we, I'm talking NASDAQ, it's not just the index options group, but NASDAQ has a very significant relationship with Investco. So that's their marketing dollars at work.

But the awareness around that in particular, like just the fact that you're bringing it up, whatever were six months since that, speaks to the power of things like advertising. It's fair to say that anything that's true of the NASDAQ 100 for the Q's is also true of the NASDAQ100 for the NDX index options at Kevin and I spend our time with. That's been a home run for everyone, right? QQs?

Like, could you have ever NASDAQ in general imagine such a, right? Not just that product, but then the move by everyone into ETFs. Welcome site or did the NASDAQ and you guys see some of that coming? I have to imagine that there were people. With NASDAQ that had big, big dreams, are we beyond them now? The honest answer would probably be yes. The ETF, if memory serves, launched in 99. And so early on, it was certainly a very different product, the constituency, the revenues, the profitability.

One of the points I think Nick and I make regularly is that, or at least internally, but hopefully externally too, is that this is a very much more mature index than it was at the Q's launch. Now, just so the audience is aware, the NASDAQ100 is a tracking instrument and calculation has been around since 85. So there is a much richer history there, but as far as end users really finding it accessible outside of a futures or a few mutual fund wrappers, I doubt that 20, 25, 26 years ago when that product was launched, too many people thought we would be on the path that we are today. Honestly, it was part of my decision a handful of years ago to shift sort of the hat from looking to grow the ecosystem around the S&P derivatives to the one I wear now. And I'm thinking about, I talked to you about this at a rooftop event you did.

And previously, I got a kid that's 10. You got a couple of kids, one in high school. And where are their passive assets likely to flow? What is the natural sort of benchmark for their generation? my belief is that that day in the sun, that dominant placeholder is coming for the NASDAQ 100, but maybe I'm just preaching to the choir here. I don't think that's out of turn though, Kevin.

Anyone I speak to under the age of 30 is definitely looking at growing when they get to go on retirement savings to grow that within names that you see in the NASDAQ 100, and the NASDAQ 100 is a natural sort of embodiment of a number of the trends that folks are looking to get behind when it comes. comes to investing those, those assets. So I, I definitely see that as a shift in the conversations I have, not even just inside my, my own work, but with friends and family.

How many people know it's the NASDAQ 100, mainly, versus the NASDAQ composite? Does anyone talk about the composite anymore? Nick, I'll let you take this one first, and then, like, I'll follow up, if you like. The NASDAQ 100, in part due to, you know, follow this conversation, right? Like, we started talking about a NASDAQ 100, because that's where you see the use ads and that that makes sense. Certainly it's an area of focus for Kevin and I, the tradable instruments in the derivatives setting, if we're going to talk about this from the namesake of the podcast, our NASDAQ 100 focused. And so I encourage folks to look at it through that lens.

The NASDAQ composite does indeed represent all the list of companies on our on our exchange. But the NASDAQ 100 provides this specific difference to its peers. And coming from twofold. Coming from a country where the predominant equity index is a 100, so puts you 100, and then also coming to a country with such a large, and I'm American now by the way, been it for seven years, but so I consider myself vaguely qualified to talk on both sides. Yeah. But coming to a country

exactly, with such a, such an expansive and varied equity landscape. It kind of makes sense that there are these different indices doing different things, and NASDAQ 100 does a very specific thing. Kevin, your thoughts? I echo that, I would say, indices, there has been an outgrowth of indices for many, many years now.

And at a corporate level, NASDAQ, of course, cares about a barometer for every company that lists on the exchange, again, not a business that I'm intimately familiar with, but of course it matters. When we think about, which most of your listeners likely do, vehicles where there are assets designed to track them, then it matters. Then people are putting capital to work. And of that massive set of choices that people have the NASDAQ 100 people vote with their wallets that too is a little cliche but where is money flowing and even when you kicked off in the beginning with the talk of crypto right that is there there were years not that long ago where it was considered illegitimate but people have voted with

their wallets and and that sort of bestows some sense of legitimacy so NASDAQ certainly cares and there are hundreds and hundreds of indices that we track. The question ultimately becomes, are there assets linked to those? And then is there a need for derivative tools to manage and really customize that exposure? And in the cases of the NASDAQ 100, that is certainly the case and it continues to grow. Yeah. To me, it's more like I don't hear anyone talk about the NASDAQ Compos. So, like, I get it's important over there, but, and I'm probably in a bubble and, right, all the options, everything, the futures we deal with are all on the 100. But so here, even I think about this often. And the comp does get, it flows across Kairons on financial TV. But when I was younger or our parents would be talking about the doubt. And I think there is a time and a place for indices. And I think there is a time and a place for indices. And I think they're, reflect to a certain extent the zeitgeist, and that is my sort of longer-term belief in the ascendancy here. And that is not the case now. I'm not on here saying the NASDAQ 100 is the

benchmark. But when you watch the evening news or whatever go through your TikTok scroll, wherever the news comes from, it's not highlighting the doubt. And that's not likely to happen at any point in the near future. And there's a reason for that. Like our taste change, asset flows move and we are in and changes constant so we'll see what shakes out in the future I was golfing a couple weeks

ago with some guys and the guy looked at his phone and he's like oh the Dow's up blah blah and we actually three of the other guys were finance guys and we started making fun of them we're like are you needy what do you mean the Dow who cares he caught that on his AOL messenger

well then to the point he probably has money and something linked to that or some that that is going to affect his investments and as those investments, you know, transition through the generations, if those are going to be folks my age and younger, that's that same conversation, you know, I'd like to be at a point where we're 50 years old on the golf course and being teased at NASDAQ 100 is, yeah, what? It was so popular 10 years ago, you know, that would be great. But that leads to my another question of it, is it become so normal, right?

It was the hot upstart, the tech, you're going to get more return, more volatility, all these pieces. A lot of the options were traded because of that, like, here's where you go for some of these more complex option strategies, which need the volatility. Does it become so mainstream that you lose that character of it? Or has it already? I haven't actually, I don't know if you guys have you on the spot, like, has the volatility come down over time, have the total returns come down over time? To me, I don't know. I'm going to tee Kevin up for a 90s music point. is Oasis any less full just because they were huge?

You know, like it, I think it's totally okay to be mainstream and still providing that special sauce. Kevin, what you think? Man, Nick, you got me with that analogy. I appreciate it. I think I would start by going back to one of the points I made a couple minutes ago about it's a very different constituency. It's a much more mature constituency. But I would also argue, given the makeup, given the construction, given that sort of index recipe where there are 100 constituents, not 500 or 2,000, or the Wilshire 5,000, or however many

are in there, it will almost certainly, I always use hedge language, be more volatile at the index level than something with a broader basket of securities. Now, putting some numbers around that, because a lot of your audience is probably quantitative... I can put a munibon 100 and probably get less volume. Sounds fun. Yeah. And tech's advantaged. So over, over like the past 25 years, that realized volatility spread on an annual basis is just over three vowel points.

Now, what's interesting... Over the S&P, you're saying? Correct. Yep. So we're talking... Like on average, it tends to stay right there? No, that really good question. That ebbs and flows.

It gets about as wide as eight vowel points, and there have been sort of one, one and a half situations where NDXVAL was slightly under SMPs. I'm going to put you on the spot here, Jeff. Just if you had to take a guess, when that might have been, what would you think? And it wasn't for a very long time.

So, like, I don't think you're going to, you're not going to look silly. Microsoft was added to the S&P? It was... Someone like that. Yeah. So I got stories around something like that, too. The answer as far as annualized vowel is 2009.

Hmm. So I, my thinking there is, like, the ex-financial part matters. And what you think about that period, very much of the risk was centered around that area of the market. Now, most certainly bled over, right? We're certainly simplifying here. But the sector that was most directly impacted was financials. Financials have lagged for decades on like a relative basis, and they now make up a smaller part of the S&P 500 than they have in a really, really long time.

you make the point about when something was added to one index or the other I'm going to turn it around on you again Tesla it was added to the NASDAQ 100 take a stab when was it yeah

2017 2013 when was it added to the S&P 500 2017 2020 the very at now a ton of market cap, growth in Tesla was captured between 2013 and 2020. And you could pick out a number of names, maybe not quite as magnificent as that one,

to coin the today phrase. Taking it back to our sort of bigger vowel point, the spread post-COVID has been on average five vowel points. Now, that might be even bigger than you probably would have guessed relative to that long-term historical norm. This year, year-to-date, annualized vowel in NDX is 25 and a half, and in the SMPs, it's 20.7. So very much in that sort of five-year average, the widest it got in recent memory was 22. And if we think, Through that, the sell-off in the market was very much concentrated on mega-cap tech. Names, big, big household names went down 30, 40%, some more, and it played out with higher vol. It is a feature, not a bug, and I think it drives a lot of the activity that we see in the derivative ecosystem, that volatility and higher vol is the appeal. I could be wrong, but I feel pretty strongly about that.

But Kevin, just back to the conversation, you and I had, Kevin, in terms of like directionality of vol and the market movement, I suppose, it just brings to mind that, of course, you know, when we look at assets, we're looking at through the lens of derivatives, which can be from a hedge scenario. Of course, when the, the underlying investors look at the assets, it comes more from the perspective of where, what's going to make money. And then you're talking there about how, you know, if you were invested in the NASDAQ 100 through that period of 2013 to 2020, you were making money in Tesla, which you weren't on the S&P. I don't know. It just got me thinking about what all that means for VOL, which I suppose inherently, you know, is not an upmarket metric per se. So it's an interesting time we're living in, right? Well, the... Technically it is, but we don't think of it or quote it that way.

Right, right. You nailed it. That upside vol is a thing in our world. And it is a thing in the calculation of annualized volatility. You think back to the early April move where markets ripped higher post, you know, we should be buying stock talk. And the NASDAQ 100 on that day was up, I believe, 12.5%. The S&Ps were up in the ballpark of 9%. 8.7%, something like that, that is a move, a close-over-closed move that stays with volatility

measures for quite some time. And what we have seen over the better part of the past decade or two is that that upside ball, that the NASDAQ 100 is as reflective as upside ball as anything, but it does cut both ways because like I mentioned 2022, that is the downside. But for passive assets, the ultimate sort of goal is performance. And so by that measure, it's going to be really hard to choose an index that has outperformed the NASDAQ over any significant timeframe. Do you think some of that is US-based too, US-centric?

Right? Like if you zoomed out even further, US over Asia, US over Europe, has been dominant. So part of that story to me is not just the tech piece, but also the US piece of the NASDAQ, right? It's got less global probably than S&P. Fully agree with sort of the,

the articulation of a zeitgeist that expands beyond just S&P, NASDAQ or Russell S&P or Russell NASDAQ. that has played out since, let's say, 2006, right? When, like, the bricks sort of countries were ascendant, that could change. I'm, like, you know, Jeff, kind of a fan of history, and it can be dangerous to think this is a new normal. The makeup of the NASDAQ 100, there are a handful of international constituents. I can't just rattle them off the top of my head and in terms of revenues

the proportion of index revenues that come from overseas Nick this is something you and I believe we're talking about is actually higher in the NASDAQ 100 than in the SMPs and I believe it's 50% now right over 50 yeah

correct is that weird because Apple's routing it through an Irish subsidiary it's like things like that I would say that probably, yeah, they are doing that, you know, in biotex as well, right? They're not, they're not the only ones. And being smart within the confines of the law with tax burden is just being smart business, right? I'm not here to prosecute that. But I was going to say that I suppose when it comes to, we talked about NASDA 100 being the index of picking winners, essentially.

to summarize your earlier point, Kevin, is that, I mean, the export market is part of what has, you know, led American exceptionalism. You know, American exceptionalism in equities is not a vacuum story. And so, again, to go back to, and granted, looking at it from a linear upside investment stance, even though derivatives provide a whole lot more exposure to that, yeah, it kind of makes sense that that's how folks want to make money off the equity. that are going to make money off the world. That makes sense. Yeah.

Who owns the IP, basically? Two thoughts here. One, my personal investment philosophy is, as soon as they come up with an acronym for it, it's time to sell, right? Bricks, all that stuff. AI as well? AI?

Yeah, I don't know. No, AI is fine. That's more of a... What does that leave in your portfolio these days? If I have to be a devil's advocate. What do you have to add something back in later? But as soon as it becomes like, oh, Bricks. Bricks was the perfect example.

And then they change. That's a good point. When they've come up with the acronym, probably all the analysis has been done by the smarter guys who have more information behind you rather than, you know, what you can do in your portfolio today. It's a good system. And then a note, we've had guys on this podcast doing tail hedging

that they actually will look to the NASDA options because they feel there's a little hedge in there. If there's a shoot up, that ball's not going to just erase like it will in the SEP. They might get a little pop in VAL, right? It's not going to be a big payoff, but it might hold up value more than you would think in a huge up market. Nick, you should be talking to those types and, yeah, have that.

Yeah, definitely. I mean, yeah, we agree. That's what we do. I suppose from from a tail risk perspective I would like to think of this because now we are getting into like managing that managing that volatility essentially not just you know what what do we like in the index and why do people like this in the index a little more derivatives focus and then specifically index options I mean for me coming at index options you know I joined nurse like 18 months ago from urex which is a a whole farm yard of different derivative classes and types and you know across fixed income um futures options repo, the like, and diving into a single product that Nasdaq offers has been a fun endeavor. And for me, just to explain kind of where I'm going here, is that index options provide this very specific opportunity insofar as the asymmetric investments, one. But then I was saying to Kevin that I find the paradox quite interesting how the proliferation

of the specificity of the expiry has occurred in this machine that inherently is kind of broad-based. So you look at what risk am I exposing myself to, and this is what I find fascinating. Is that in index options, you're looking at, okay, we have this discussion, you know, we might be on an investment committee talking about, you know, what put option are we going to buy? Let's just brought it down to a simple scenario. And we had the discussion about, okay, well, why is our investment? are we looking to hedge? But then I think what is most fascinating to me is just how these broader indices, we're talking about different time periods. So then to be able to segment and slice up is

not something that you tend to do in the future's world so much. Those tend to be role positions, you know, for specific management of specific, you know, deliveries. This is more about, you know, okay, what, what am I hedging against? And that is what attracts NASDAQ 100, what's attracts NASDAQ 100 for me is, is that these tail risk scenarios, we often look back at what were the tail risk, you know, and we talked about financial, you know, financial crisis 2008. Okay, that's a big one. And, of course, you know, although a financial crisis would have a have an impact, a big impact, surely on the NASDAQ 100, you know, we can dive into, for example, the differences in the average debt ratios in the NASDAQ 100 tends to be higher, for example, than S&P 500.

but by the financial names are not including the NASDAQ 100 so then we start to look okay what are the contemporary tail risk scenarios like deep seat day is the scenario that we're hedging against truly a question of you know whether the the 400th to 500th constituent of the SMP maybe sort of old school industrials are going to go down 10% or is it that invidio has a particularly bad day and if if invidia is making up such a a large portion of my portfolio, that's something to consider. Yeah, I'm 100% we run across these investor types all the time of like, oh, I'm trying to hedge my portfolio.

I'm looking at this S&P tail risk and what's your portfolio look like? Right, and it's basically the NASDAQ 100. It's Navidia, it's AI, it's Apple, all these things that have increased greatly in value. So, yeah. And there's still a point you're making, right? Like, hey, make sure your protection matches your, exposure. The one other point I would make, and it's getting a little bit wonky, but I think most people would follow, is that in the derivative markets, the supply, the natural supply

demand dynamic is always going to matter. And by and large, most tail risk strategies are expressed to this day in the S&P 500. And you could make an argument that the tail volatility, So there could be any number of options that fall into that category. But let's say like a 10 delta or less option with six months until maturity or more, right? Wing options that the demand for those as a function of vol control tail risk strategies pushes up that sort of relative value of the S&P put and you don't see the same. natural demand to date in the NASDAQ 100. And so we have looked at some of the data going back historically, and on a relative, you could make a relative value argument that if we have that event, that catalyst, that

drives the S&Ps down, I'm just picking a number, 20%, the NASDAQ 100 would likely be down 25%, something in that neighborhood, and that the VAL performance, of the, what would then be the at the money options and both would be more responsive in NDX. So I think that's, it's a longer winded story, but I think we will through time see flows of the tail risk management variety that are increasingly expressed on a relative value appeal in NDX. We have seen, sorry, I'll leave it at this, but the, uh, approach. proliferation of insurance firms, looking for lit markets in long-dated NDX maturities, and that is because they are seeing demand from, I want my reference asset to be the NASDAQ 100, and I want some parameters around that exposure. The lit market is then informing the OTC market,

and you see that risk recycled back into OCC- cleared products like we support. Can you explain the lit market from my friend, George? Sure. Yeah, so anything that you could pull up on your trading front end has a lit up a visible bid and ask. There's just a call around business and finding a market. And then there's the OTC or dark pools in the equities world, and that is an opaque market. And beyond that, it's not centrally cleared in the knock on wood unfortunate scenario that something like that becomes a concern. And so the liquidity providers are lighting up of value based around some theoretical value for the rest of the world to see.

And I think that a great deal of OTC risk is at least using that as some indicative pricing to manage these longer dated exposures. the risk around it. In millennial and Gen Z listeners, the market is also lit. It's a fun place to hang out, right? Yeah, yeah, exactly. The lit market, man. That's some Miami lingo.

You got one. Do you, is part of it, I don't know the numbers here, but it's probably more expensive the NDX option tails, right, to purchase. So they're going to be more expensive, which people just, it's like a cheap head. like, I'll sacrifice some of the, I'll take on some basis risk to save a little money paying this annual expense on the tail hedge.

Nick, do you want to take that owner? Yeah, I mean, essentially, that's not inaccurate. There's going to be costs associated with that. Ultimately, it's the cost per, you know, volatility exposure that you're getting in that. And of course, that is higher for a high volatility index. I suppose that speaks to Jeff, the other use case of, and Kevin alluded to insurance companies that offer annuities. various structured products go around this

where there are income strategies and that will be kind of the counterpoint to what we've just been talking about in terms of the validity of these tail risk hedges not even counterpoint but just the other side of the coin is that if you're looking to generate income from the index options market in selling these options

then there are there are possibilities in the NDX Kevin if they're too expensive sell them instead of buying so when when you make an expensive or cheap argument, it is relative to something else, either itself historically or some other asset. And the one thing that I would point out as certainly an appealing element of a notionally sized product like we are supporting is that with one put option, for example,

you are theoretically offsetting the full value of the index, which right now, we're talking about a 2.6 million. So the ratio, my point here is that the ratio of NDX over SPX continues to widen. And so with fewer contracts, a hedge fund or an insurance firm can offset the same notional exposure using NDX as opposed to SPX. And so if you notionally equate the premium dollars, they're probably a very very, very much more similar than we're sort of alluding to right now. In pure premium terms,

NDX is a rich contract to trade and you need to have your big boy pants on. That is why we see predominantly spread trading going on because outright exposure is very, very costly. Yeah, and I'm blaming some naive people who just see, oh, it's, I can, I have to spend less over here. Like, I'm going to ignore all the upsides and all the notion. I'm going to ignore everything else. And it's just, I have to spend $500 versus $1,000.

So I'm going to spend $500. That's how consumers work, right? Exactly. It's all over the place. So we bounced around. We've touched on flows a little bit a couple of times. So a few things, no particular order. I'll throw on my lap there and you guys can tackle them as you see fit.

As you mentioned, all of these buffered notes. structured products, all of that flow coming through into the listed option space. The proliferation of covered call strategies, which are somewhat related, but a little bit different in my mind. And then the zero DTE stuff. So who wants to jump on which grenade first and kind of talk about what you're seeing there? And is that as big as I've seen reported and is it growing substantially? I'll start and then flip to Nick, but those are not grenades. Those are uh those are growth bollipops yeah i mean

they they are boxes that just keep getting bigger now from the seat that you're in you want the business where where those flows are then ultimately wrapped within the ETF structure

and offered out and available but behind the scenes what's going into that box and this too sort of going back to the how consumers behave is exactly what the market needed in my mind. So many people don't want to manage the nuance of I'm comfortable with long outright index exposure and sure, I would love protection against the first 10% and downside.

Or I would love to potentially participate in some of the upside. Now we're talking about covered call, structured sort of overriding. and I will give up some beyond a point, right? But they don't want to go into their XYZ account, manage that, roll it, deal with the tax implications. They want a simple wrapper. And this made all of that available, and the market has voted with their wallet

and put hundreds of billions of dollars into these wrappers over the past handful of years. My belief is that it is still very much early stages. And that belief is sort of pinned to the huge number of assets that are traded in structured product. You are seeing all the sort of flavors that are available in the structured product world come to the ETF wrapped world. And it is a good thing, I believe, for the market. Now, that said, that doesn't mean that every wrapped product is a good one, because I think you're saying, seeing some sort of that leverage is typically at the epicenter of things that unwind in an

ugly way and if you don't appreciate how much leverage you are assuming in a given position that that can work out very poorly but for the judicious really well-informed investor to be able to get that exposure in a tax-efficient wrapper and not worry about all of the nuance. I think it is a very, very good thing for the market. I think that incentives have been aligned. And when Nick is out talking to hedge funds and stuff, I imagine they find it a little bit more difficult to position their sort of value prop, given the proliferation of sophisticated product available in a very simple wrapper now. Yeah, I fully agree on all that. I would say that hedge funds are still doing what they do for who they do it and doing it well. I would say that you also have to think about it from the lens of. And the example of sprung to mine, Kevin, when we were talking there, was I'm on the board of a food pantry here in Coconut Grove in Miami and we have a small endowment. And you have to think about it from the lens of when you might,

have, a lot of endowments have fully staffed investment committees of finance professionals. A lot of endowments don't. And in aggregate, those smaller groups, you know, we have to go through that education process with the board to understand, you know, what are we investing in. And I think the advantage of Buffett Notes in particular is that it strikes the balance between easy enough to understand and invest in without being excessively complex and creating what would be perceived as risks to a group who maybe are looking at the funding of a food pantry over a period of time so we don't want to be in that that you know very tail risk scenario but we also do want to participate in the upside because we want to still feed people

10 years from now. And so that becomes an investment that makes sense. You know, and historically would have probably been fulfilled by some combination of blue chips, blue chip stocks with dividends. And so it really isn't a new model. It's just

a new way of folks accessing that in a way that I think makes a ton of sense. And certainly we do as an endowment. And now the bakery selling these donuts. So you might not have a, but to me it's like become so popular, my cynical brain's like, something's going to break, right? Something is getting too big. What's the, when the other foot falls, what's it going to look like? And then I realized,

well, if you just, a bunch of call selling, it's just going to look like a bunch of people only making 20% when they should have made 40% or something like that, which maybe after enough years, people start to say, hey, this is stupid. I'm, right? I'd rather have, maybe not. Yeah, you're just, but sorry, I remember the rest of my point that I was making the Kevin on the, uh, the, uh, hedge funds, as you have these instruments that Jeff talked about that, you know, that are providing certain returns that may and may not be suitable in a given moment, I see that as like building blocks to the pyramid of you have, you know, more sophisticated investments up top for more sophisticated needs and the proliferation of bank QAS desks that provide those sophisticated

strategies for large institutional clients, not the coconut. of crisis food pantry endowment, but instead a large pension fund, I don't think that those are unrelated. I think that step up in sophistication is actually combined, because those guys are on those endowment boards as well. And as everyone gets more involved, it actually just brings it all up. To your point, Jeff,

what is the tail risk of these terrorist protection strategies? And I think that that, you know, we would just see a reset of how folks would want to invest, best, but the same has been true of like, you know, you look, when do you dip your toe in crypto? Yeah. When you see those investments going up a certain amount? Yeah.

And when's the moment for that? So for me, and my love of derivatives as a market is that it just provides all these options for gift upon for investors and the increasing amount to which those are being made available across the board. It's just a wonderful thing. Well, Jeff, you, you made a point that I think. people that have been in around the market through a variety of crises are want to make, and I'm very much the same way. And then you answered it with, well, like in the example of

the covered call, we're talking about strategies that have a beta of like 0.65 to 0.7. Now, contrast that with something like the implosion of levered volatility exposure, where it's 2x of exposure right. And I'm not trying to pick on any specific name, but like a 3x micro strategy. And these are not things that are designed to be held long term, but do end users understand that when a performance chart looked like short bowel through 2017?

It did exceptionally well until it didn't. and understanding that what's going into my wrapper is crucially important. The one other thing that you teed up a couple of minutes ago that we didn't address, which is another sort of market structure question to a certain degree, is the real appeal, the volume generated by expiring options, by short-dated options these days. and that's one where I think even the most optimistic of exchange veterans probably would say, wow, this has this has grown beyond what I had anticipated.

For one of the reason of like, we've always had options expiring today. Like, what's the big deal? Like, we've always had options that have zero days till expiration. But now they're every day. So yeah. Yeah. But the, I keep going back. to the sort of consumer markets across the board.

And people value customization or precision. You think about like shoes. When we grew up, there's just like a handful of shoes that were available. And now you can legit design your own and have them delivered in like a week. It's amazing. The other thing I think about, and I'm going to bring it to sports right now, is your son playing golf. My son, I'll go to a baseball game later today.

He arguably, like some people could argue, they spend too much time on the range, playing golf, playing baseball. It's repetitions. And I would say if you are able, as a newer derivative user, to get those reps in and to get regular feedback

from these short-dated options, where premiums are smaller, where theoretically your risk is smaller. It depends on the strategy, big time caveat. But you're getting feedback from the market. What's working, what's not. That's sort of like practice, practice, practice. And if you're only able to play one game, I'm making it too simple here, a month, you're going to get better through time.

But if you're able to play 20 or 21, typical trading days in a month, you can probably fine-tune a strategy much more quickly. And maybe I'm oversimplifying there, but I think that increasingly market participants are seeing value in that ability, that combination of precision sort of customization and regular market feedback. And guys on the pod talking about the mathematics,

but even ignore learning just, if I believe I have this minuscule edge, I want to run it back as many times as possible, right? So the mathematics support that. And then the other thing about, like, reducing your path dependency, right? If you had a big move on the third week of the month back in 2005, your passive strategy would be really impacted with something that you're able to do either weekly or daily, your path dependency changes significantly.

And in the zero-d-te world, we created this. I mean, we count the contracts as an exchange. Like, that's how we make money is exchange fees, right, for the contracts. So we don't always, you know, on a balance sheet, we're not profan loss. We don't differentiate. But of course, the nature of those instruments is so wildly different, whether it's expiring, you know, in 10 minutes or whether it's expiring in 10 months. And so I think that the, you know, you could logically and many,

research departments do isolate those ex-prey flows into, you know, specific analyses of, okay, what's being done. And it's a completely different market, a different set of people doing a completely different set of things with a completely different set of things, even though the tick is the same on Bloomberg. The Greeks can be completely different. The speed of move is completely different. You know, all of those things are so different. But I think it just speaks to the beauty of derivatives again, you know, that's, that's the specific. 50 of exposure. Not only can we provide you that over a, over a period of time, but also, you know, five minutes from now. In my brain, these for-profit exchanges are just going to

keep going down that rabble, right? Of like, hey, let's do half-day options. Let's do hourly options. Let's do, right? Like, why not just keep getting shorter and shorter time frame? At some point, there's going to be, right? What's, I'll ask you guys, what's the practical limit of the innovation there from the exchanges side? The thing. I would say, and I am not privy to any plans like that. I understand your point from like an MBA analysis of what drives the bottom line. And just to be clear, that would probably be good for a group like yours, like more things on the menu, right?

Where we benefit. I don't think that's exclusively how exchanges look at it, because we are sitting between a variety of different players with different motivations. Beyond that, there are technical concerns. So if you think about liquidity providers and the amount of quoting that goes on, given the number of strikes and products we have right now, it is pretty remarkable how efficiently our markets operate. I think there's something like on an average day in NASDAQ options exchanges,

100 billion messages. That's beyond what I can comprehend because I'm not been in that. I'm printing out, right, Kevin? So, and no blockchain was needed. Remember when blockchain was going to solve that and anything that hadn't that many?

We can just do it. We're good. From, can I, I'll speak, Kevin, unless you want to finish up. the uh from a transatlantic lens i think i've become increasingly cognizant and i had this this debate um uh with colleague mine from sweden uh hey hockin if you're listening um and you know he was saying that well the the the hundred decimal decimalization of everything is the way forward and we should we should decimalize time you know like he'd very very strident on this you know

had his had his logic and i guess i'm only sorry that he's not here to defend himself but um my point is that there are suitable measurements for everything. And it comes down to actually, in the end, biology. You know, like, ultimately, a day makes sense because it's light outside for a period of time and then it's dark outside for a period of time. 24-hour period is a logical period, and that's the sun. Similar story, you know, like when it comes to American and European measurements,

European favors the logical, you know, it says, okay, you have one gram, and you have 100 grams. you have a thousand was it a thousand was it a hundred mil liters thousand thousand thousand millimeters is a liter and a liter is a kilogram yada yada right american in the name brigatsy uh yes thank you put it in a show notes skit yeah but the but the but the but the american favors the practical and you open a you open a recipe book in europe and it has grams a hundred grams now that that works if you're going to the supermarket to buy something in an 100 gram number. But American says cups. Well, everyone can just buy a cup

and then we all know cups. And then cups, it's slightly less accurate. But from a practical lens, it actually makes sense. And the one that I've always found funny and to this day I'm using is that when I came to America, I realized that the gallon price, which, by the way, a gallon is a logical amount. It's like this much, right? Again, back to the point. And that's an ounce, you know, so forth. But the gallon on the, the price of the gallon on the, on the pump was how many miles I drove per gallon. In England, we're weird and we have, you know, miles per gallon is a fuel economy. You would buy a gas by the liter.

So I always had to do the math. And then I came to America. I was, oh, 25. How about it? That's how many miles. So anyway, where I'm going with all this is just that there is a practical limitation to a lot of things. And it's organic. And America happens to be at the forefront of that.

It relates to measurements. and we've said, no, we don't want to do metric. But for this purpose, you know, every second wouldn't make sense. We can't do things in a second. So there is this logical... Who are those traders? Who's like... Is anyone demanding that they get shorter and shorter?

Well, I'm sure someone is, but again, it comes down to, like, how practical is it for most people? And to Kevin's point, how practical is it for the market makers in question? I just enjoy that as a as a conversation So in England you still have miles per gallon for your car but it's leader so yeah

Yeah we we sort of awkwardly straddle But it's so expensive anyway Like why even do the math Just be like this is too expensive Take the train A couple more things AI generally What is NASDAQ doing

anything inside of the exchange with derivatives with AI to like you were talking about to transact those billions of transactions or whatever and then more generally just what do you guys thoughts we talked about what are those tail risks like if there's another deep fake or AI kill somebody or who knows what's going to happen right is that the next tail event of some right or some couple fortune 500 companies go this isn't working for us we're pulling back on all our AI spending. So maybe let's start with the second one. No, I'll let Kevin think about the second one while I answer the first one.

So NASDAQ, of course, as a exchange, but also FinTech is implementing AI. And AI, I can come in this from a derivative lens and figure if you've had, you know, guys who operate CTAs do machine learning. Like AI from a training lens isn't necessarily a new thing. It's just the speed at which things can be changed and re-changed and done. and all that jazz. But machine learning has essentially been there. And it's kind of the nature of software. I suppose when I think about software as a service,

I'm thinking about like functions that we can get computers to do that historically humans did. I wish I had it with me. I got a book, fantastic book, after the trade is made, David Weiss. And it's written, I think, late 90s. And it shows all the securities processing functions that happened. And these used to be rooms,

people and it has these wonderful diagrams where you can see all that. It's fantastic to read as someone who's kind of new to the industry because, well, like, you know, from, joined since the advent of computers, should we say. Because a lot of those functions still exist, but they're done by computers. And the reason that they're done by a computer in a certain way is because a human used to do them. So anyway, I just think it's interesting when you look at software and the way that that's gone, specifically when it comes to teaching software to teach itself. which is how I conceive that notion. NASDAQ, from a exchange perspective,

we have to choose what strikes to list. So when it comes to NDX, we have all the strikes when you go on your option chain, and you can see the different strike points that you can pick for the strike on your options contract, as well as the XBri, the strike, and the XBri, and the call on the put, the buy and the cell give you your sort of definition of the contract.

so we don't have strikes from zero to 10 million that would be too many messages to Kevin's earlier point so we have we've implemented an AI system by which we can sort of align the supply and demand and the likely supply and demand of those strikes so that we're being efficient as a provider of this infrastructure and keeping our servers cool essentially so that so that when there is a you know a specific interest in a specific strike not only is that strike listed but also then we're ready to do it. We're not wasting service space on the on the stuff that isn't being being used. I need to call when I'm like, where is this strike on Corby?

I don't, why isn't it here? Yes. And certainly, you know, there are a request. You know, Kevin talked earlier about like insurance issuers asking for not, not essentially strikes, but expert listing at a further place. But yes, indeed. If anyone's looking for strikes, feel free to get in touch. But for the time being, we have a system that deploys AI to facilitate much of that.

And then, of course, NASDAQ more broadly as a sort of FinTech organization, we've made acquisitions of Adenza, Verifin, other fintechs that deploy AI in their solutions. That's not so much Kevin in my space, but a big part of the NASDAQ corporate strategy. A lot of early AI in terms of markets was used for compliance, too. no market manipulation and fat finger stuff and all that stuff. Right, rightfully so, yeah, yeah, exactly, picking up on what on. And your second question was around, you know, what does the next stage of AI look like and or could that be a challenging scenario, should we say?

Kevin, I wonder if you're resource there. Go ahead. I'll throw one more piece to that is my theory is we're going to AI ourselves into a huge recession because we're going to take away all the consumers, right? like this whole two buildings of people that had to create that market structure you're talking about now does not have a job or they have different jobs well this isn't our first industrial revolution right that would be my first like thought to that is that you know sure those those factory jobs and I suppose you could even think about it in terms of NASDAQ 100 as the index of the factories at

the time of predominantly agricultural development um to me that that was not a inherently bad, you know, situation for most people. People reskill, they retool. There are jobs for people. They may look different to what they were before. I suppose to me, the main advantage of AI is that I think retooling is can, you can never argue, you can't argue, I don't think you can argue that retooling has been ever faster.

You know, you can take someone and retrain them in something different if they have the skills to use AI in their new line of work, I suppose, is kind of where my head goes to. And then fundamentally, you know, the same number of restaurant staff, you know, I mean, where are we going to take this? You know, ultimately people, I suppose this comes back to the practical limitations of the economy that we talked about in terms of like how many, how short should our explorations be. I would say that ultimately this whole wave of technology is still in the advancement of human beings and we need places to live and cars to drive and places to spend money and food to eat and all of that which is an economy in and of itself which can be

spread up by AI but you know it's it's going to be a while before that is a wholesale replacement and we never have an indirect I mean the scenario I suppose we're talking about is having no interactions with humans ever that's not what we want so it's not going to happen Kevin You guys went very sort of philosophical, and I think I'm sort of of two minds on that one as well. The only thing I don't think you brought up is that like industrial revolution, that needed at some point in, you know, in the process a pushback. And so there I'm thinking about things like labor rights. And so the regulation that exists in U.S. markets is one of the reasons I think it has become the epicenter of financial markets generally. There is trust.

And so long as we are able to advance this artificial intelligence effort, And people continue to trust the output, then we're doing well. And it's going to require some type of governance to keep it on the rails. Jeff, your sort of original point of the, what if we can't monetize this? I think it's a very real risk because there's not been, we don't have a long enough track record to say, here's how you manage through a crisis.

And ultimately our economy is still dependent on my spending, Nick's spending, your spending. And so the cannibalization of jobs, right, it's easy to tell some dude from 1842 he needs to retool. It's a lot more difficult when you and I have to do it. And so those are legitimate concerns. I don't know where they go, but the can we monetize it, I think, is a real linchpin. I wish I could answer.

I can't. But if there's a tail risk event, I think you might see more responsivity in NDX options compared to other alternatives. Yeah, look at them, put the bow on that. And related somewhat, and I guess your thoughts, is the net, are we more top heavy now than we ever have been? Has that always been a feature of NASDAQ 100? Is S&P trying to catch up and getting more top-heavy to look like the NASDAQ 100? Sorry, three questions in one there. Are you worried about the top heaviness and is it all that different than historically, is the main question?

Last thing first. Historically, I would say that a market cap weighted index, unlike the debt, inherently favors some sort of top-heavy makeup. That we vote with our wallets and the big ones make up a bigger portion. It has worked. Relative to history, it is not that different than any other time. We're talking about degrees of like, is it 22% in the top 10? And now I am talking about the S&P 500 versus 29%.

percent and is there a tipping point? Ultimately, it is very typical for a handful of securities to really pull along the rest of the market. And the same thing happens on the downside. They can bram down. Those securities have had a greater concentration or exposure in the NASDAQ 100 over the past handful of years, and that has led to out performance. Now, if you look, because we talked a bit about global markets, our concentration is much smaller than what you see in the likes of

Nix Futsi 100 or the Dax where just a handful of companies' securities dominate the market and it still works, but like the market cap of NVIDIA is still bigger than the entire Futsi 100 market cap or like the Dax. Our approach is working. Are there risks? Most certainly. Can they be managed?

I would argue yes. But I think big picture that markets are bought and sold and we like to lean into the greed side and we like to sell the fear side. And I think mostly the concentration stuff is written. with that fear or motivation. I'm not scared. Can I add that like everything's always top heavy? That's the, you know, Walmart makes more.

Well, Walmart makes more money on one thing than another. So if you have an index of companies that look exactly the same and perform exactly the same, it's still top heavy just in a different way. It's top heavy within those equities. So it just happens that this is a top heaviness expressed separate, with an outperformance to Kevin's point of supply demand and then, you know, demanding that particular equity. It just happens that NASDAQ as an exchange has the, has the equity listed that people want and the price reflects that, you know, that could also be that people want

a portion of a specific stock and not another. So I suppose, yeah, top heavy at what level? I know your question is quite clear in nature, but I would argue that there's always going to be winners and losers, even if that's, you know, possibly internationally, possibly even in a microcosm of particular equity. And the losers get caught at the end of the year. The losers get cut. And that's formulaic, or there's a committee? Formulaic in the NASDAQ 100,

which, again, I would argue people prefer as opposed to some of the choice embedded in the S&P 500. I was just remembering, as you were saying something, I think two years ago, in the NASDAQ, where the dispersion trade was kind of upside down, the actual single names were having less volatility than the index itself? Am I mistaken that? Or that happens from time to time? Well, you bring up a very interesting point, particularly right now, where something Nick and I were talking about over the weekend, realized correlations within both of the major indices we've

talked about so far are at historic lows. That means that idiosyncratic risk is what we're seeing. Stocks, you're getting in the past handful of weeks a legal ruling where Google and Apple were pleased and had big days. And you see these single names that are making big moves, but at the index level, by nature of how indexes are, it's balanced out, and we're seeing exceptionally low realized volatility. The dispersion trade has grown alongside, you know, like the Wrapped product we were talking about yesterday. That is something where I believe in time you will increasingly see the index

vol component of a vanilla dispersion trade whereby somebody is long volatility in the constituents, short at the index level. I think you are going to increasingly see that expressed in the NASDAQ 100. I think the concentration, and there are so many ways you can carve up this version, I'm talking vanilla. But like the, you typically do it with some subset of the constituencies and you could vague a weight or whatever Greek weight you prefer, arguably easier with the NASDAQ recipe. and then...

Well, 100 stocks versus 500, too. Or if you wanted to do it in the 500, they're typically doing 50, maybe, of the constituents. So you're talking about a 10th. And it has worked. We are, I'm in Evanston, as I mentioned, and I've become friendly with some professors

at Kellogg, at part of Northwestern, and they are doing some research specific to NDX as a dispersion expression, and we'll have something to talk about there next year if you promised to have us back. Done. My theory is the other side of it. These companies, which the proof totally proves me wrong, but my theory now proven wrong is they've become so big.

They're like countries in and of itself. You said it's bigger than the footsie that you'd think their volatility would come way down and they would operate with all these different revenue lines, but no, they have one big revenue line. It still blows my mind. a trillion-dollar company can add 5% in market cap after earnings?

Like, wait, what? How do people not know that? You guys got any last good thoughts? I think what's interesting is where Nick is headed and how globally interesting our index is becoming. So as far as I'm concerned,

I write regularly stuff where, like, I gave you a flavor with the evolution, where I try to make these markets that can be a little esoteric, more approachable, and if you're interested in that, sign up for it, we regularly do public-facing things like this. But Nick gets out and talks to institutional end users, and they are clamoring for time with him kind of globally, and God bless him for the number of flights he's going to be out in the next few weeks.

I've got a little packed schedule. Yeah, where's the most interesting growth spot there? I would assume like Hong Kong and London financial hubs, but is that other stuff? Naturally financial centers. London is a huge secondary market for us as it relates to New York,

of course, being where we see the most action from an institutional lens. But, you know, it gets spread out in the U.S., And then it gets spread out globally. I think the brand NASDAQ has globally and that recognizability. There's a better word somewhere. Anyway, that provides, you know, a lot of interest

into when it comes to more sophisticated investments around US equities. I think the script we talked about earlier where NASDAQ 100 is, becoming dominant is kind of already, you know, playing out in other corners of the world. You know, we get talked about when it comes to U.S. equities, and that's the nature of all the things we talked about in terms of our constituents. And the liquidity available in a cash settled index option like the NASDAQ 100, and the strategies you can do off the back of that

is definitely attractive to the global audience. So to complete the picture, I'm headed up to New York next. I'll be there for a little golf tournament I don't think I've made the team though I'm waiting on rider cap Yeah I thought I was Yeah I thought I was a shoo-in but okay Yeah no mind we'll figure that one out Then I'm on then it's the

The Global Volatility Summit in New York Then I'm on to England Spintama's family And then I'm actually playing the The second ever Rider Cup venue which how's your trivia it was the first ever

writer cup venue Kevin St. Andrews Worcester Country Club in Massachusetts and then the second ever writer cup venue

was more town in Leeds so I'm from a similar part of the world to Alistair McKenzie and if you were building a golf course in the 1920s

in the in the Leeds area there was one golf course designer that you call which was Alken so I'm playing that one then I'm on to Taiwan speaking at the Taiwan futures exchange conference and then Hong Kong free QD out to Korea and then I'll be back for a quick rest bite for some more travel but yeah it's a fun all time

I'm taking a golf tops with me that's the important thing love it but and I was hazing you guys before we got started off camera of like you got somewhat of the easiest travel there like who doesn't know NASDAQ who doesn't know NASDAQ 100 and think they need the options why and there's tons of people You tell me, am I in the bubble? Am I just confused or is it so well known? You're not, but we are not thought of in the index options world. You brought the point up about the commercials and the cues. And I think there is an opportunity to wrestle back some of that sort of brand cachet

to take it in-house, not wrestle it back. Their distribution channel is hugely meaningful. But NASDAQ is becoming a significant player in the index options business. I don't think the corporate has been thought of that way historically. It has been ceded to Chicago names. And I think that competition in that area of the market is good for anyone involved. And so that is as much the message as anything. This product exists.

You can manage derivative risk in a cash settled. European product. You could certainly do it if you're willing to trade 41 times the number of contracts and the queues. And the growth that we've seen over the past couple of years is a testament to at least some part of that story resonating. Noting to that point, Jeff, exactly, that, you know, I do go out and indeed, all the conversations. Oh, yeah, cool, it's on my point of Terminal. But ultimately, what it comes down to is, um, exchanges tend to have some, you know, unique insight, you know, a product roadmap or development, something that we're, we're tracking. And that, that engagement with, uh,

end users of the product is really what, what drives the, the family of, of, of, of users, um, as it would back in the day, you know, like providing coffee in a, in an old school exchange. My, uh, my, my great grandfather was, uh, secretary of the Bristol stock exchange. So responsible for many of the same things at a regional exchange back in England. But, I digress, point being is that there's analysis that we share on liquidity trends, flow trends, market data that we sell on open-close positions. And so connecting the dots for institutional users there is really what I do. And the tipping point is just that I think a lot of folks came out of the pandemic looking for what's the new norm, what's it looked like? Where are we at now, you know, all that sort of stuff?

And since three years ago, our volumes have double tripled and our spreads of halved. And so in index options? In NASDAQ 100 index options. And that liquidity becoming a sort of tenable mooring, as it were, is really the story of the last 18 months, two years since I joined. And that that availability of the product in a liquid format, you know, being able to trade in and out a bit in an economical way is really what has changed. the message that I get out to folks. Like Kevin has content, I also have a weekly distribution email. I call my NASDAQ nugget.

If I know we'd like to get on the nugget, we tend to share a little something that we've seen about, you know, just a volatility, you know, something that we've spotted and we tend to share a bit of just a one-minute read on that. I want some nuggets. I'm partly guilty. So now after this, you guys have won me over it because I've put together decks and help managers before. I'm like, why the S&P, right?

Why hedge with ESPN, the answer is always in the deck of like, well, that's where the world goes to hedge or something, right? It's like just the de facto where you go, but it's kind of a weak, but that's kind of a weak answer, right? I'm like, oh, just because everyone else is doing it. But yeah, and then it's a tipping point, right? Like, if everyone's doing that, it's hard to get a foothold, but once you get a foothold, now there's real conversation. Like, well, okay, yeah, it does make sense. That's my exposure, like we talked about early. So you're on me over.

Good work. Wonderful. One, one down. One down. The rest of the world we go. We're up to it. Awesome, guys. We'll leave it there.

Thank you. Good luck to your son and his baseball game this afternoon. Kevin. Nick, I hope your team loses at the Ryder Cup. Well, who are you cheering for now? I will be cheering for Team Europe, but that's because I'm a West Prome fan and an England fan,

so I'm wired to cheer for the other. on and be getting hazed by all the rowdy New Yorkers? I'll be quiet. One of the coolest things I've ever seen, I was at Butler, was it out here with the last rider car, or four ago, whatever that was. Medina. We're really talking about Medina?

Okay. In Europe one. Yeah, okay. And I was on like the 15th hole, I think it's part five, up by the green. Rory hit his second, three wood, bombed it into the green side bunker. and he comes walking up and we're standing there all excited and these guys have these plastic horse heads on and they're like going, Rory, Rory. He started dying laughing.

He came over and he high-fived him and he signed some stuff and he was just like totally relaxed. And then I was watching him and he just, like he just all of a sudden something clicked on the screen. He went into Terminator mode, just smiled, completely went off his face, walked in the bunker, hit it like a foot, two feet away and made the putt and they went on to.

win. So, congrats. But that was the most impressive piece of, like, human, uh, emotion. Zen achievement. Yeah, exactly. Sounds like you'd be a good, uh, risk manager. Exactly. Right. There it is. Awesome, guys. Thanks for your time. And we will talk to you soon. Wonderful. Thank you. Thanks for having travels. You've been listening to the derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter. at RCMaltz and visit our website to read our blog or subscribe to our newsletter at

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