The War No One Can Price | The Weekly Wrap – 3/22/2026

This week’s Excess Returns Weekly Wrap breaks down the biggest market drivers right now, including how markets price (or fail to price) war risk, why volatility signals are flashing unusual warnings, and what options market positioning is telling us about potential downside. Featuring Jared Dillian, Brent Kochuba and D.A. Wallach, the episode also explores how macro regime shifts are changing diversification, how the Fed is reacting to rising oil prices, and why biotech investing is essentially a portfolio of options.

Topics Covered

• Why markets struggle to price geopolitical risk and war probabilities
• The concept of “willful ignorance” in market pricing of obvious risks
• Implied vs realized volatility and what the VIX is signaling right now
• Why volatility premium is near historic highs despite a relatively low VIX
• How options flows and hedging activity influence stock market movements
• The risk of a sudden volatility spike and what could trigger a VIX move to 40
• The Fed’s dilemma with rising oil prices and inflation vs demand destruction
• Why oil shocks can be both inflationary and deflationary at the same time
• The idea of “path of least embarrassment” in Fed policy decisions
• Biotech investing explained as a “bag of options” with probabilistic outcomes
• How drug development stages impact valuation and expected returns
• Regime change in markets and why stock-bond correlations have flipped
• The concept of non-stationary markets and constantly changing investing rules
• Why most investors fail to adapt during regime shifts
• The “Awesome Portfolio” and diversification across economic regimes
• How options dealer positioning and gamma exposure can amplify market moves
• Why OPEX (options expiration) can act as a turning point for markets
• The shift from short-term to longer-term hedging in uncertain environments

Timestamps

00:00 Why markets fail to price obvious risks like war
03:30 The Ukraine example and delayed market reactions
09:50 Volatility premium vs VIX and why the spread is unusual
12:00 How hedging activity drives implied volatility higher
16:30 Oil shock and the Fed’s policy dilemma
18:40 Inflation vs demand destruction from higher energy prices
23:00 Biotech investing as a portfolio of probabilistic outcomes
27:00 Valuing drug pipelines using expected value and probabilities
32:00 Regime change and the breakdown of stock-bond diversification
35:00 Non-stationary markets and adapting to new investing rules
47:00 The Awesome Portfolio and diversification across asset classes
54:50 Options gamma and how dealer positioning impacts volatility
57:00 Why a 2 to 3 percent drop could trigger a VIX spike to 40