Broken Pie Chart Derek Moore

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial review some interesting VIX option trades around the election and around inauguration day in 2025 compared to the next few months options action. When young people say home ownership dreams are dead is that true? Surprising numbers to compare inflation adjusted costs. Plus, on Friday the market swung from down over 1% to up almost 1% as we continue to be in a buy the dip regime. Later discussing the evolving Fed rate cut expectations and why it shouldn’t be a surprise. Finally, they go bring up container shipping costs rising again and what that means for inflation, the Presidential election market cycle, history of interest rates, and more.
 
Looking at VIX trades far out of the money around election and inauguration day
Are retail investors making bets on a rise in volatility due to the election?
Why trading VIX options can be frustrating and may be misused by retail traders
Home ownership dreams dead for young people?
Comparing a monthly mortgage payment today on an inflation adjusted basis to historical
Home prices compared on an inflation adjusted basis
History of interest rates over 5000 years
Container shipping costs on the rise
Share buybacks at highest level over the last couple years and what that means for earnings
Friday’s huge market reversal going from down to up in the last hour
Fed rate cut expectations through the end of 2024 down from 7 cuts to 1 cut
4th year of the Presidential cycle and the S&P 500 Index
What Shiller Cape ratio means for returns over the next 10 years
Cape PE ration and Price to Free Cash Flow
 
Mentioned in this Episode
 
History of Interest Rates book by Sidney Homer and Richard Sylla https://amzn.to/3V3TNEJ
 
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
 
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
 
 
Contact Derek derek.moore@zegafinancial.com
 
www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial talk about Nvidia’s earnings report and how they are catching up to Apple in total market cap. Will they cash Microsoft? Then they note the percentage of companies mentioning AI on earnings calls. What does that mean for CAPEX spending on semiconductor chips? Later they look at how housing prices after a small drop are now growing YoY despite higher interest rates and higher payment per median home price. The gold rally now one is noticing in 2024. A little Japan 10-year bond talk as rates hit 1%. Finally, Jay and Derek talk about how rates are staying higher for longer and the market might need to get over it while the “threat” of lowering rates might help markets.
 
Earnings mentions of AI on earnings conference calls surge
Nvidia is catching up to Apple in market cap
What is market cap and how to compute it?
Surprising market cap size for one semiconductor company.
Comparing S&P 500 Index market return paths since 1990
Is 2024 the new 1995 for S&P 500 returns?
Nvidia stock price growth vs income and revenue growth last 10 years
Now investors don’t thing there is a chance for a recession
Investor sentiment or likelihood of recession being high might be contrarian indicator
University of Michigan inflation expectations over next 5 years surges
Historical asset class by year returns
Gold still rallying but does anyone care?
One family home sales median price year over year price change growth
Charting monthly mortgage payment on purchasing a median priced home
Japanese 10 year bonds hit 1%
Why investing for longer means your win probability gets really high
 
Mentioned in this Episode
 
Roaring Kitty Tweets and Gamestop rises and falls
https://open.spotify.com/episode/5PtbYzdRunB7UPJRWQaXYK?si=OkMXUjOnQRGaJ2OZY-y8YQ
 
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
 
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
 
 
Contact Derek derek.moore@zegafinancial.com
 
www.zegafinancial.com
 
 
 

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial start by looking at GameStop’s (GME) call option open interest and activity in the days prior to Roaring Kitty tweeting . They notice the increase in options activity ahead of the surge in the stock’s price and volume spike and whether the options market led the stock market on GME. Then they comment on another new all-time high by the S&P 500 Index and how according to a BofA chart 90% of the time markets are not in a recession or in stagflation since 1948. Later Derek and Jay bring up the CPI Supercore trending higher while car insurance rates are soaring. What does this mean for the Fed and rates? Finally explanation of when covered calls get called away early.
 
Roaring Kitty comes out of hibernation to tweet.
Looking at GameStop options activity prior to Roaring Kitty’s tweet
Did the options activity prior to the stock activity mean people knew the tweet was coming?
Are we in for a GameStop meme stock part 2?
Why retail investors should use caution in trading GameStop.
Looking at the implied volatility on GameStop options to understand expected volatility.
CPI Supercore continues to rise YoY and what that means for interest rates and the Fed
Car insurance rates are surging 20%+ and rising
How long it takes the S&P 500 to go up each 100 point increment
According to a Bank of America graph 90% of the time since 1948 no recessions or stagflation
Enough about the Fed and rates?
When do covered calls get called away early and assigned?
Understanding dividends vs time value in deciding when covered calls get assigned
Early assignment for options
What implied volatility says about what the options market expects a stock to move
GameStop 300% implied volatility is massive and how expensive the ATM straddle is
 
Mentioned in this Episode
 
PPI comes in hotter than expected click below to read the PPI report release
https://www.bls.gov/news.release/ppi.nr0.htm
 
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
 
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
 
 
Contact Derek derek.moore@zegafinancial.com 
 
www.zegafinancial.com

Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial discuss the idea that the stock market is in a Goldilocks period based on sustained higher margins and earnings growth. Then, they discuss how out of the headlines the Fed has already started easing by reducing their balance sheet runoff each month. Why reducing the Overnight Reverse Repo usage (RRP) isn’t restrictive but rather was a reaction to demand for short term treasuries by money markets. Later they talk about how interest rates are below long run averages despite what everyone tells you on CNBC and why high rates may not be a problem. Finally, they look at corporate earnings and profit margins for the S&P 500 Index and how they’ve growth over the years, gold prices vs oil prices as a predictive model, and yes some shipping container inflationary commentary.
 
Growth in S&P 500 earnings per share analyst projections
How net profit margins for the S&P 500 Index companies has growth over the years
Why this might be a hated bull market despite some goldilocks market aspects
What could derail this market?
Why profit margins continue to be higher and why they do or don’t have to revert to the mean
The Fed balance sheet explained
How the Fed is going to be reducing the amount of bonds running off the balance sheet.
How the Fed is restrictive and easing at the same time
Explaining what the Overnight Reverse Repo Market (RRP) is
Why the Fed reducing the balance of Overnight Reverse Repos isn’t restrictive policy
The order of how the Fed may ease (hint, it may not start with interest rates)
The 1990s bull run with higher interest rates and lower profit margins
Maersk container shipping operating hints at higher costs due to capacity, fuel, and congestion
What does higher container shipping costs mean for inflation and prices?
Do Gold prices project out what oil prices will do in the next 19 months?
Explaining the cost of hedging and how it is very cheap to put on downside hedges right now
The cost of a 1 year 10% out of the money put option
The cost of a 1 year ATM at-the-money put option
Using low or no cost collars to hedge the downside
Using long put spreads to hedge or buffer the downside
 
 
 
Mentioned in this Episode
Explaining High Dividend ETFs and Stocks and How Reinvesting Dividends Works to Build Share Count and Compound Returns
https://podcasts.apple.com/us/podcast/reinvesting-high-dividends-deep-dive-unemployment-the/id1432836154?i=1000654585450
 
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
 
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
 
 
Contact Derek derek.moore@zegafinancial.com
 
www.zegafinancial.com
 
 
 
 
 
 
 
 
 
 
 

 
Derek Moore is back with Jay Pestrichelli, CEO of ZEGA Financial this week to discuss the Jay Powell Fed decision and the latest in employment and inflation. Then, they do a deep dive into dividend reinvestment. Specifically, analyzing the idea of acquiring more shares and can dividends reduce or eventually pay down your initial cost? They then do a deep dive into how the time premium works on options.
 
Lowest year over year wages since 2021
Unemployment ticks up.
High dividend stocks and dividend reinvestment deep dive
Acquiring more shares through dividend reinvestment
Compounding dividends through dividend reinvestment and increasing share count.
What is shareholder yield?
What is buyback yield vs dividend yield?
Fed higher for longer is now consensus.
What is time value of an option
Looking at option premium and time value through the market maker lens
Exploring the SPX 6000 Call option expiring Dec 31st, 2024, premium and time value
How options are priced
How market makers taking the other side of customer orders have to hedge their positions
Components of unemployment report labor force size vs employed and unemployed
Selling option premium to create high dividends
 
 
 
Mentioned in this Episode
 
Is it 1994 All Over Again? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
 
Now Its 1 Fed Rate Cut? | Nvidia Options Volatility Implied Move at Earnings | Sell in May and Go Away in Election Years? | Inflation Higher Than 1970s? https://podcasts.apple.com/us/podcast/now-its-1-fed-rate-cut-nvidia-options-volatility-implied/id1432836154?i=1000653836218
 
 
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
 
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
 
 
Contact Derek derek.moore@zegafinancial.com
 
www.zegafinancial.com

Derek Moore discusses the declining probabilities for Fed interest rate cuts in 2024. Plus, how PCE Supercore did not make the case for Fed rate cuts. Later, looking at the analyst’s expectations for earnings growth within the S&P 500 Index. Finally, comments on a paper showing how using the pre-1983 methods to compute CPI Consumer Price Index show we had higher inflation that the 1970s.
 
Declining Fed Funds rate cut probabilities for 2024.
Explaining how implied interest rates from Fed Funds futures are computed.
The case against rate cuts seems to be buoyed by sticky US CPI Supercore measures.
What is CPI Supercore and PCE Supercore compared to CPI Core and plain old CPI?
Explaining how the US CPI Consumer Price Index used to compute inflation prior to 1983.
How measuring housing inflation changed in 1983.
Why did they change how CPI is measured to owners’ equivalent rent?
Looking at the probabilities for rate cuts across different Fed FOMC meeting dates
What about Sell in May and Go Away in election years?
Explaining how to tell what the options market is implying for a 1-standard deviation move
Implied volatility around Nvidia earnings date scheduled for May 22nd
How to calculate the implied move in a stock based on the options market
Examining the at the money ATM straddle on Nvidia options expiring 2 days after earnings
 
Mentioned in this Episode
 
Is it 1994 All Over Again? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
 
Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA
 
Previous Week’s Podcast:
 
Market Correction | Mortgage Rates Higher | No Thanks 24-Hour Trading | Synthetic Options https://podcasts.apple.com/us/podcast/market-correction-mortgage-rates-higher-no-thanks-24/id1432836154?i=1000653114012
 
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
 
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
 
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
 
Contact Derek derek.moore@zegafinancial.com
 
www.zegafinancial.com