Seeing more willingness to buy into weakness for blue chip stocks, says Susquehanna's Chris Murphy

Brian Sullivan (Anchor) 00:00.000

means that super cap, mega cap, giant cap technology has literally been running the show and running your money. Is that going to change? Do you want us to help us figure out that answer? Susquehanna's co-head of derivative strategy, Chris Murphy, just a just a tiny little

Brian Sullivan (Anchor) 00:17.200

question to start this segment, Chris, which is is the entire stock market of the last three years over?

Chris Murphy (Co-head of Derivative Strategy) 00:26.880

Hey Brian, you know I think technology is still going to going to have its day. But when we're looking at the options side of things, blue chip names like Nike, Disney, Starbucks, they've been major underperformers, part of the reason for those stats that you just showed. So

Chris Murphy (Co-head of Derivative Strategy) 00:46.600

when we're tracking some of the more interesting first half of 2026 option trades, we're seeing a lot of, you know, willing to buy further weakness in Disney or Starbucks via put sales, or looking for the stock to finally start to rebound and and rally and outperform when we see

Chris Murphy (Co-head of Derivative Strategy) 01:08.440

call spreads in Nike. And even in the most defensive of sectors in the staples, we're seeing early 2026 call spread buyers. Now, they're not necessarily saying, we're sure that the equal weight is going to bounce back. What they're saying is, given the underperformance over the

Chris Murphy (Co-head of Derivative Strategy) 01:28.720

last year, six months, etc. We like the risk reward to these option plays in case the rest of the market does finally catch up to tech.

Brian Sullivan (Anchor) 01:39.440

Yeah, and that's a huge if and we've seen Chris some head fakes where you had these moments where the AI stocks go down, other things come back, people come on this network, they say this is it and then the AI stocks come back. It is a kind of like the Fed minutes at the top of

Brian Sullivan (Anchor) 01:54.680

the show. Do you find it to be a a bit of a not confusing time, but it's not clear how things are going to play out, to me at least.

Chris Murphy (Co-head of Derivative Strategy) 02:04.760

Yeah. No, I mean it's an exciting time. We like to look at probabilities. We know nothing is certain. So we're going to look at the payout of a call spread. For example, in the XLP call spread that I mentioned, do we think XLP is 100% to get back to its 2025 high in 2026? We

Chris Murphy (Co-head of Derivative Strategy) 02:26.680

have No, of course not. Nothing's 100%. Do we like buying a 25% chance of that happening, we do. So I think the uncertainty, the rotating in and out of sectors, trying to pick winners, that all lines up really well for defined risk option strategies.

Brian Sullivan (Anchor) 02:48.040

Yeah. And what are you seeing or not seeing in option spreads, Chris? That could give you because we're looking at a VIX at 14.5. It's effectively showing, I don't want to say no risk in the market. market, but very low. The VIX is actually just a measurement of options

Brian Sullivan (Anchor) 03:03.640

activity, not straight fear. What are you or not seeing in the options market that's any kind of a crystal ball or tea leaves insert metaphor here for next year?

Chris Murphy (Co-head of Derivative Strategy) 03:18.440

Well, first of all, yes, the VIX is pretty low. That's because every sector is moving in different direction, but the low S&P volatility is pulling down volatility everywhere. there. So, one interesting, kind of observation would be, we're seeing a clear increase in tail hedges

Chris Murphy (Co-head of Derivative Strategy) 03:39.080

in defensive sectors, almost the opposite of what we were just talking about if the defensive sectors finally actually catch up, but you're talking about utilities, healthcare, staples, etc. We know that mid-term election years, we historically do often see at least one or two

Chris Murphy (Co-head of Derivative Strategy) 03:56.640

big sell-offs. Those tail puts in those defensive, typically low-vol sectors are pretty cheap. It's once again, not a play on staples are definitely going to sell off, but it's a play on these options are very cheap on the downside tail. If markets sell off, correlations spike,

Chris Murphy (Co-head of Derivative Strategy) 04:19.160

the volatility of a low-vol product like the staples is going to move up a lot more than the volatility of something that already has a high volatility level like like a single stock or some kind of high-flyers. So that's kind of one way to read through the tea leaves.

Brian Sullivan (Anchor) 04:37.960

Do you care who the Fed chair is? Or it says Kavanaugh, you guys, to your point, you're into whatever happens, you're going to have the optionality literally and figuratively for any outcome.

Chris Murphy (Co-head of Derivative Strategy) 04:48.120

Yeah, I mean, you could look at betting markets and you can see

Brian Sullivan (Anchor) 04:50.840

7 half to 46% on Koshi.