Aspen Analytics
Last week I sat on a panel hosted by Shannon Staton of The Collective — a group of high-net-worth individuals, traders, and portfolio managers who gather regularly at interesting places around the world to discuss markets, life, and business with the kind of candor that rarely makes it into published commentary. My co-panelist was Kris Abdelmessih, whose work in options I’ve followed closely for years. Around us sat a handful of serious practitioners — derivatives specialists, macro portfolio managers, commodity traders — people whose daily work requires them to have real positions in the questions we were discussing.
The conversation lasted an hour and a half. What struck me afterward wasn’t any single prediction or trade idea. It was how willing a room of serious people was to say, plainly, that they didn’t know.
Kris opened by saying he’d never felt more puzzled. One derivatives specialist in the room talked about the air getting thin without knowing when it would matter. A macro portfolio manager offered a structural framework and immediately noted it was his theory, not his base trade. Nobody had a hill to die on. This, I’ve come to believe, is not a failure of analysis. It’s the correct response to the market we’re actually in.
Several structural observations emerged from the conversation that I keep returning to.
The first is what Kris described as the singularity trade. The options market is pricing a binary world — implied correlation between index constituents is at historically low levels, meaning the market is essentially saying that a handful of names will eat everything else and the rest of the index is largely irrelevant to that outcome. This isn’t irrational, he argued. It’s the market expressing, ex ante, what it believes the distribution of outcomes looks like. The late nineties looked the same way. Which doesn’t tell you when or how it ends. Only that this is the movie.
The second is the feedback loop that has produced the grinding, shallow-pullback regime I’ve been writing about in recent months. Massive options volume creates systematic dealer hedging that puts a mechanical bid under every dip. Retail participants conditioned by a decade of buy-the-dip being rewarded reinforce it. Institutions sell volatility into every spike because they’ve been paid for it repeatedly. Each force amplifies the others. One of the derivatives specialists put the fragility plainly: the real question is what happens when the first dip comes and then another dip follows, and the participants who’ve been leveraging into every correction find the volatility they’ve been selling marking against them sharply. The same mechanism that creates the stability creates the fragility. It doesn’t announce itself in advance.
The third is the structural underpinning that one of the macro portfolio managers laid out. The market has a floor under it, and that floor is fiscal. Deficits running at roughly six percent of GDP are continuously putting money into the system. What took the punch bowl away at the end of the nineties, he argued, was Clinton surpluses — the federal government net-removing money from the economy. When that happened, earnings started to matter. Right now, earnings don’t have to matter in the same way because the fiscal support is structural. If fiscal contracts while issuance simultaneously increases — the wave of IPOs approaching could flip years of net negative share issuance into net positive — that’s when the structural tailwinds reverse. Nobody in the room claimed to know the timing. But understanding which forces have been working in the market’s favor matters, because it tells you what would have to change for the math to shift.
And then Kris asked the question that I think is the keystone for understanding the regime we’re in.
He asked, essentially, whether the stock market has become the third rail of American politics. Whether, given that household retirement wealth is now dominated by equity exposure, a sustained drawdown has become politically intolerable in a way that’s structurally different from anything we’ve seen before. The response from around the room wasn’t disagreement — it was a mechanism. Politicians have learned that you don’t control markets through rates alone. You control them by buying assets. Suppressed volatility means the market grinds higher. The toolkit exists and it has been used. The intervention muscles, as Kris put it, are very loose now after the GFC and COVID.
I’m not a political economist and I won’t pretend to be. But the structural observation is worth sitting with. If the market has become a political construct in this way, then the framework most of us trained in — where prices eventually revert to something like fundamental value — requires updating. Not abandoning. Updating.
I left the conversation without a trade idea. I left with something more useful: a clearer sense of what forces are actually at work in the current regime, and a renewed conviction that in an environment this structurally unusual, process is not just useful — it’s the only anchor available.
Asked during the conversation whether I had a hill to die on, my answer was immediate: process. Not a directional view. Not a prediction about when any of this resolves. The process survives regime changes in a way that any single thesis cannot.
Most market commentary spends its energy arguing that the market is disconnected from reality — that prices should be somewhere other than where they are, that fundamentals will eventually reassert themselves, that the old rules will return. That argument may be correct. It is also, right now, beside the point.
The market is reality.
Reflections from a long career in trading.
Aspen Trading Group is a registered Commodity Trading Advisor (NFA #0576114). Nothing published here constitutes trading advice.
