tastylive: Market Measures

In a data-rich market measure, analysis shows 2025 correlations between major assets are significantly higher than historic lows across the board. SPY and QQQ have reached "maxed out" correlation levels, suggesting unified market movement despite Friday's volatility. Gold has returned to its classic hedge profile with near-zero or negative correlation to equities, while small caps closely track major indices, indicating broader risk-on participation. Tech sector cohesion remains strong but less extreme than during pandemic peaks in 2020-2022. The research suggests traders should be mindful of correlations when constructing portfolios, potentially reducing position sizing during periods of unusually high correlation. Metals continue showing strength with silver up nearly 6%, while tech darlings like NVIDIA, Microsoft, and AI-related stocks post significant gains.

A 10-year market study reveals significant differences in price volatility between ETFs and individual stocks. ETFs like SPY, IWM, QQQ and DIA experience outlier moves (defined as twice the daily expected move) only 1.6-2.3% of the time, with SPY going up to 567 days without a significant outlier. In contrast, individual stocks like Tesla, AMD, Palantir and Lululemon saw 81% more outlier events and spent 42% fewer days in calm periods compared to ETFs. Western Digital (WDC) showed the shortest period without outlier moves. The data supports selling premium on ETFs during low volatility periods, while individual stocks may offer better opportunities when implied volatility is high. This explains the current popularity of 0DTE SPX trading strategies among premium sellers.

Recent research reveals that while S&P 500 futures meander slightly up ($2.75), 2025 has shown significantly more volatile weekend gaps than historical norms. The study comparing 2015-2025 data indicates that 25% of down weeks started outside the one standard deviation range – far exceeding the expected 16%. This pattern suggests traders should prioritize position management before weekends. Despite market volatility, Monday openings have been higher than Friday closes 51% of the time in 2025, slightly below the 10-year average of 56.3%. However, these weekend moves have shown greater downside risk. For traders, this data emphasizes the importance of Friday portfolio rebalancing, especially for short-duration positions, to mitigate weekend exposure risk.

Overnight gaps in stock prices offer potential trading opportunities, but implied volatility levels significantly influence outcomes, according to a comprehensive market analysis. The study examined SPY movements from 2017 through 2025, comparing gap behavior across different volatility regimes. In moderate volatility environments (IV 15-30), traders find the most consistent patterns, with 1-2% upward gaps continuing 70% of the time and downward gaps typically bouncing back. High volatility periods (IV 30-60) act as "reversal machines" where chasing big moves often proves counterproductive. 2025's market behavior has shown distinct patterns, with moderate downside moves providing buying opportunities while upside gaps during high volatility periods have been more suitable for fading. The key takeaway: assess implied volatility before developing a gap trading strategy, as identical price movements behave differently across volatility environments.

Market analysis reveals that approximately 70% of stocks in both S&P 500 and NASDAQ follow the overall market direction on any given day. During significant market movements exceeding 2%, over 80% of components move in tandem with the index. For moves greater than 3% in either direction, correlation increases dramatically with over 92% of NASDAQ components following the index. This research demonstrates that downward market movements show stronger correlation than upward trends, suggesting "fear is greater than greed." The data confirms that hedging strategies are more effective using index ETFs rather than individual stocks, particularly when anticipating significant market moves. Only 8-12% of components typically move counter to the overall market trend during major shifts.

Tony Batista and Tom Sosnoff analyzed stocks with implied volatility exceeding 100%, challenging conventional assumptions about mean reversion in extreme volatility scenarios. Their research revealed these high-volatility stocks often maintain elevated IV levels rather than quickly reverting. The study examined price movements over 7, 30, and 90-day periods for stocks like Tilray ($7.68), Plug Power ($2.94), EMNR ($56.69), and Sequans Communications ($9.60). While data showed surprising upside in surviving stocks, the hosts emphasized this reflects significant survivorship bias since delisted companies weren't included. "On tastylive, you will never hear Tony or I talk about any of those stocks," Sosnoff noted, cautioning viewers against chasing these high-volatility names despite their apparent upside potential.

A tastylive market analysis reveals that extreme market movements often lead to counter-trend moves the following day, challenging the "trend is your friend" adage. After examining 10 years of data across 40 tickers, researchers found that following a two standard deviation upward move, markets show a 58% probability of reversing downward the next day a significant shift from the normal 45% probability. The asymmetry is notable: 74% of studied tickers demonstrated mean reversion after substantial rallies, while only 58% bounced after major declines. Apple shows a particularly strong 15% tendency to fade after rallies, prompting Tom Sosnoff to immediately sell Apple stock during the segment based on its recent extreme upward movement. The findings support a contrarian approach rather than momentum trading, though researchers caution that position sizing should reflect the speculative nature of these probabilities.

The Market Measures focuses on "Demystifying Denominators". Mike and Jermal explain how numbers can mislead without proper context. When evaluating market moves like the 1987 crash (22% drop), context matters significantly. A similar percentage move today would represent a nearly 9,000-point Dow drop or 1,200-point E-mini move. Comparing strategies across different underlyings requires normalized metrics like percentages rather than absolute values. While high IV rank products like TLT might appear attractive, traders should consider the actual implied volatility values, as the range between low and high IV is much narrower in some products compared to stocks like TSLA or OKTA.

The market measure segment focused on beta-weighted delta as a portfolio risk assessment tool. Research indicates that low correlation products (0.3-0.6 correlation to SPY) may underestimate actual risk exposure during market volatility spikes. When volatility increases, correlations between stocks typically jump from 0.6 to 0.9, potentially increasing portfolio risk by approximately 50%. This analysis suggests traders should consider their beta-weighted deltas might underrepresent true directional risk in low volatility environments like the current market, particularly during significant downside moves when correlations approach 1.0.

The market measure segment addressed strategy for breached option strikes, showing that rolling untested sides outperforms both closing positions immediately (36% win rate) or holding to expiration (73% win rate). Rolling can increase win rates to 78% while reducing delta exposure and adding credit, though at the cost of maximum profit potential.

Dr. Jim presents Hilbert's Hotel, a mathematical paradox demonstrating the abstract concept of infinity through a thought experiment about accommodating guests in a hotel with infinite rooms. The paradox illustrates solutions for accommodating new guests by moving existing guests according to mathematical formulas - from simple room reassignment to using prime number powers for multiple infinite busloads of guests. The segment connects this concept to options trading, specifically undefined risk strategies that theoretically carry "infinite risk." While theoretical infinite losses exist with short calls or strangles, traders typically quantify risk through practical measures like buying power effect or CVAR rather than worrying about truly infinite losses.

Hosts Tom and Tony welcomed researcher Kai to discuss a week where markets ignored mixed economic news and continued rallying toward new highs, highlighted by Oracle's historic 36% earnings surge that ranks as the 4th largest single-day gain in stock market history. The move added $244 billion in market cap, surpassing Google's entire previous week gains and pushing Oracle near $1 trillion valuation. Friday's SPX intraday range compressed to just 0.3% (roughly 20-27 points), occurring less than 1% of the time historically and making zero-day trades extremely difficult to execute. Tom emphasized that volatility represents the "cheapest thing in the world" with everything else expensive, though he avoids direct volatility products preferring to get short the S&P instead. The upcoming week features Fed rate decision Wednesday and triple witching Friday, with expected moves continuing to shrink (only 60 SPX points expected) as the market enters an extremely low volatility regime reminiscent of 2017.