Robinhood CIO EXPLAINS why market swings have become so extreme

[00:00:01]I don't know if it's been a confusing or contradictory market, one of them, right? Think about this.

[00:00:05]You know, the sessions that have that have more winners are actually down days, right? Now, up days we actually have more decliners. It's so crazy. And then of course there are days when you have technology popping big time, right?

[00:00:17]It feels like, "Okay, we're on our way, boys and girls." The next day, no, it's staples that are outperforming. My next guest has an explanation for what's happening here. So, I'm so happy to bring in Stephanie Guild, CIO of Robinhood Markets and First, let's talk about this concept that you wrote about with the the delta and gamma.

[00:00:36]>> Yeah, delta is a way that a it's a measure for an option and it says how however much a stock price moves, it determines how much the option price moves. Gamma kind of determines the amplification of that. So, if gamma rises, that means your option prices will move more.

[00:00:54]Um and that's essentially what we're saying here. It's the gas um and it makes the market move even more.

[00:01:00]>> It does it does it doesn't work to on both to the upside and downside?

[00:01:03]>> It does. Um >> It feels great when it's working on the upside. Those gamma squeezes were phenomenal.

[00:01:07]>> Yeah, I mean it's amazing, right?

[00:01:08]Because what it means is that like natural buying has to happen more when things are moving higher, but when they go down, that means there's extra selling, unfortunately.

[00:01:17]>> takes us to what what you you know, you you've coined the the call or is known as the amplifier loop.

[00:01:23]>> Yeah.

[00:01:24]>> Explain this. Walk us through it.

[00:01:26]>> So, um basically like right now you have a lot like more than 60% or around 60% of options out there on the S&P 500 are zero days to ex- expiration. So, that means zero DTE is the phrase. So, that means there's naturally there's more gamma in the market because things can flip very quickly in one day, right? So, that actually creates a lot of same-day bets, which means that other things when things go wrong, they get amplified.

[00:01:51]Then you have a lot more leverage ETFs.

[00:01:53]The assets under management leverage ETFs has grown to over 180 billion. So, when you have that and things aren't working, those leveraged ETFs have to sell on down days and they buy on up days. So, you get these amplifications and then of course there's a lot of borrowed money out there because there's a lot of hedge funds that are going long short and it just creates a whole loop.

[00:02:13]>> Is it Is it a controlled loop? I mean, it feels like it could it could you could see this going off the rails so to speak.

[00:02:19]>> I think it gets worse and worse until it washes out and I do think like I think your last guest kind of said this, but I do think we are close to washing out. I don't know if we're completely done, but I do think we're close and I we're seeing customers step into this dip as well.

[00:02:32]>> Well, that's I was going to ask you this. Stepping into the dip. Well, the earnings so far giving them a lot of opportunities as well because second quarter earnings are just notorious for being for the reaction to them. I don't know why they're so bad, but this is even worse than normal. Not, you know, so far if you miss you're down 9%.

[00:02:48]Historically, the stock is only down 3%.

[00:02:50]That's tough to think even if you beat you're down.

[00:02:53]>> Expectations are really really really high. If you look like they've grown earnings growth expectations have grown by 50% since the end of March. So, just in the last quarter. And for the entire 2026 year and and for this quarter as well. So, it's something when when expectations are higher, that means it's already in the price. If you have one little thing wrong, it can it can make it >> What what name do you think will stand out the most this week? You know, you got the I probably Is it Google reporting?

[00:03:20]>> Google's obviously for this year side.

[00:03:23]Intel I think is going to be closely watched because those expectations have shot up in the last quarter.

[00:03:28]But there's a lot of interesting ones this week.

[00:03:30]>> Let's talk about this, right? Because K3 has kicked up a hornet's nest.

[00:03:35]Give me three.

[00:03:37]And you know, you wrote your thoughts on open source and you mentioned Jevons paradox.

[00:03:41]This is a term that's used a lot and I'm not sure everyone in the audience understands it. So, William Stanley Jevons in 1865 wrote this book The Coal Question. What he observed was that it's about the industrialization of of Europe that that the consumption the more efficient coal-powered steam engines became and it didn't lead to a decline in consumption actually led to increase in consumption and this is sort of the paradox and you can apply whether in 1865 to rails or right now to what's happening in in AI.

[00:04:09]>> It happened with electricity too. So what with AI you can end up having more efficiency and that creates less use of certain things like power and compute but then more use cases get created and and then I think that's actually what will happen is that things we can't even imagine will happen.

[00:04:26]>> Right. But the bottom line is that as as as these things get cheaper the more money can be spent on it overall net net. That creates a greater pool of opportunity for for investors.

[00:04:34]>> It creates air pockets in between.

[00:04:36]>> Right. All right, let's talk about the some of the things you trimmed you said just sort of the physical layer but a little bit ahead of the volatility. What is that but you still have exposure to AI?

[00:04:46]>> We do. Yeah, we we were very focused on it and we decided in June to take a little bit of profit and start having more balance where we're looking at what what beyond the kind of physical area of AI can benefit from this growth and that could mean things like Shopify or Visa even because of the whole kind of stablecoin connection. So I think there's been some interesting things there but then we're not walking away from it. Like that that will still be needed.

[00:05:14]>> And investors net sales I thought this is sort of intriguing.

[00:05:20]Do we have this right the net sales and net buys?

[00:05:22]>> Uh it's actually the other way. So yeah, so our customers have been buying the dip on Micron, buying SpaceX on the dip and then making some sales in some of the Magnificent >> But you're hearing a lot of folks saying at some point there's going to be inflection for these like the hyperscalers and at some point their free cash flow which I started the show going negative it's going to rebound and in maybe a year two years from now it'll be greater than ever. You do you anticipate something like that?

[00:05:45]>> I mean that's the hope, right? And I I think that's what they're betting on.

[00:05:49]>> early to bet on that, though.

[00:05:50]>> I think I think it is a little bit.

[00:05:51]Although, Meta it's interesting with Meta because I think sentiment like expectations are everything and they got pretty low. And if they can sell compute while they're doing this, that's kind of interesting.

[00:06:00]>> It is. It's And it helped the stock when they announced it.

[00:06:03]>> Great stuff, Stephanie. Always appreciate having you on.