Nov. 2, 2026 - Is the AI Bubble Bursting? Market Moves: Dealer Positioning & Trade Strategies

Episode Overview

• Jason and Jay discuss the current state of market liquidity, the changing dynamics of the artificial intelligence trade, and trade strategies for upcoming tech earnings.
• The hosts analyze the recent market drop, evaluating whether the AI bubble is bursting amidst valuation drops for companies like OpenAI and Anthropic.
• They introduce the Delta Adjusted Dealer Spread as a crucial metric for understanding market stress and predicting potential bounces.
• This episode is highly relevant for options traders and market participants looking to understand how dealer positioning and liquidity flows impact index movements.

Key Concepts

• The AI Valuation Shift: The fundamental narrative surrounding AI has changed as massive valuation adjustments occur. This shift is driven by high competition, immense capital expenditure, and questions about how these companies will generate sustainable cash flows.
• Delta Adjusted Dealer Spread (DADS): This metric measures the bid-ask spreads quoted by market makers, serving as a proxy for market liquidity and stress. A high DADS value indicates that dealers are pulling liquidity and demanding more premium to hedge, signaling heightened market stress.
• Liquidity-Driven Market Dynamics: In a low-liquidity environment, price movements can become highly volatile and accelerated, especially when the market enters negative gamma territory. Understanding these flows helps traders anticipate when the market is prone to sudden reversals or "dead cat bounces."

Quotes

• At 4:33 - "The AI trade has changed fundamentally a little bit... the valuation was down $20 billion in valuation." - Jay explaining the recent shifts in market sentiment regarding artificial intelligence companies and their sustainability.
• At 9:38 - "DADS is the Delta Adjusted Dealer Spread... when the market reaches some stressful times, dealers demand more edge, they spread the bid-ask spreads a little wider." - Jason defining a key proprietary metric used to evaluate market maker behavior during volatile periods.
• At 10:54 - "You see all this positive vanna below... that means dealers would be losing money if the market's coming down and implied volatility is going up." - Jason explaining the relationship between dealer exposure, market direction, and volatility.

Takeaways

• Monitor the Delta Adjusted Dealer Spread to gauge market stress, keeping in mind that a return of DADS toward its historical norm of 12 to 16 indicates stabilizing liquidity and a potential market bounce.
• Avoid playing tech earnings blindly during high-stress periods, opting instead to wait for the volatility crush post-earnings to establish positions.
• Adjust trading timeframes to be tactically short on a swing basis when major indices are stuck in negative gamma zones with weak underlying liquidity.