We'll see a 'YOLO' options craze in an unexpected industry this year: RBC's Amy Wu Silverman

Market Volatility Outlook: 2026 & Beyond

Key Concepts:

• Volatility Skew: The imbalance in demand between put and call options, typically with put demand exceeding call demand. This has reversed post-COVID due to retail investor preference for call options.
• YOLO (You Only Live Once), FOMO (Fear Of Missing Out), MOMO (Momentum): Behavioral finance terms describing risk-taking driven by short-term gains and social trends.
• Tail Risk: The risk of extreme, low-probability events impacting markets. “Fat tails” indicate a higher probability of such events.
• Shadow Hedging: The practice of hedging positions not through traditional means (like put options) but through alternative instruments due to concerns about volatility spikes and whipsaws.
• Disintermediation: The removal of intermediaries in a financial process, in this case, a shift away from traditional options markets towards alternatives like prediction markets and cryptocurrency.
• Right Tail/Left Tail: In probability distributions, the right tail represents positive extreme events, while the left tail represents negative extreme events.
• Overton Window: The range of ideas the public will accept.

I. Market Overview & 2026 Volatility Outlook

Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, anticipates that market volatility in 2026 will “rhyme” with 2023, meaning a similar pattern but not a direct repeat. Despite recent market highs (Dow and S&P) and the Nasdaq being relatively close to its peak, the focus is shifting. RBC’s 2026 outlook predicts a continuation of current trends, but with exuberance in call options potentially moving into unexpected sectors like healthcare. This isn’t necessarily a negative sign, but rather a redistribution of retail investment.

II. The Shifting Landscape of Retail Investment

The discussion centers on the potential decline of sustained retail buying in equities. However, Silverman argues that retail investors aren’t necessarily exiting markets altogether, but are diversifying into “shinier” alternatives like cryptocurrency, prediction markets, and short-term options (specifically zero-day options). This shift could lead to a moderate correction in equities, but not a catastrophic one. The key point is that retail investors are seeking new ways to express optionality.

Silverman notes that the removal of consistent retail “buy the dip” support doesn’t automatically equate to market fear. Investors are adapting, changing their tenor (duration of options contracts) and methods of expressing their views. The example of Venezuela is used to illustrate this, as the situation is being actively traded in prediction markets. Ten years ago, options markets were the primary venue for such speculation.

III. Shadow Hedging & Reluctant Rally

A significant portion of the conversation focuses on “shadow hedging.” This refers to the reluctance of investors to actively hedge their portfolios due to the high volatility and rapid reversals experienced in events like the April 2nd market sell-off. Investors are hesitant to commit to downside protection until they see clear downside momentum, fearing being caught in another whipsaw.

Silverman describes the current market as a “reluctant rally,” where portfolio managers are forced to participate in the market to meet benchmark returns, even if they harbor bearish sentiments. This is evidenced by the fact that investors consistently express bearish views in macro roundtables, yet remain heavily invested. This dynamic creates a situation where investors are simultaneously bullish (due to participation) and bearish (due to underlying concerns).

IV. Option Skew & the AI Narrative

Silverman highlights a key technical indicator: option skew. Traditionally, put option demand has exceeded call option demand because investors typically buy puts to hedge long positions. However, post-COVID, this dynamic reversed due to the influx of retail investors who overwhelmingly prefer buying call options. This skew is now appearing in industries not typically associated with speculative trading, such as healthcare.

The reason for this shift is linked to the AI narrative. Investors are seeking to identify which industries will benefit from AI investment. They are looking for “show me” evidence – tangible results demonstrating AI’s impact on efficiency and profitability, particularly in sectors like healthcare and industrials. This represents an extension of the AI story, manifesting in technical indicators in unexpected areas.

V. Geopolitical Risks & Tail Risk

The discussion shifts to geopolitical risks, specifically Taiwan and Greenland. Silverman emphasizes that the situation in Venezuela served as a “ping” regarding Taiwan, as it highlighted the potential for similar geopolitical events to disrupt markets. Clients are increasingly asking how to express their views on these risks, indicating a growing awareness of “fatter tails” – a higher probability of extreme events.

Silverman acknowledges the expanded “Overton Window” under the current administration, suggesting a wider range of previously unthinkable scenarios are now considered plausible. She notes that while geopolitical events are historically difficult for markets to price, the immediate reaction is often muted, with a subsequent focus on the impact on specific sectors (e.g., chips in the case of Taiwan).

VI. The Importance of Perspective & Market Resilience

The conversation concludes with a discussion on market resilience. Silverman points out that panic rarely leads to profits and that even during periods of volatility (like April 2nd), the market often rebounds quickly. She emphasizes that the worst-case scenario doesn’t always materialize and that a nuanced perspective is crucial. The example of tariffs is used to illustrate this point, as initial fears of a significant market impact proved unfounded.

Silverman notes that the market consistently returns to the question of AI’s impact, regardless of geopolitical events. This underscores the enduring importance of the AI narrative in shaping investor sentiment and driving market behavior.

Notable Quotes:

• “It’s going to look similar to last year, but it’s going to rhyme.” – Amy Wu Silverman, describing the 2026 volatility outlook.
• “I call it the reluctant rally in the sense that…you have to participate, because you have to meet a certain benchmark return, does that mean you’re bullish? I don’t know, but it still means you have to participate.” – Amy Wu Silverman, on the current market dynamic.
• “You don't really usually dabble in fundamentals, and I like these are not all exactly the same YOLO, FOMO and MOMO, but they’re all kind of the same.” – Commentator, highlighting the behavioral aspects of market trends.
• “You never catch your tail if you chase it.” – Commentator, offering a metaphorical observation on market behavior.

This summary aims to provide a detailed and specific account of the conversation, preserving the technical language and nuances of the original transcript.