Follow the big stingray and you’ll never know what you might see.
Speaking of which, I’m back from the sea! Belize, specifically. Here’s a collection of trip photos.
I was snorkeling near our catamaran with Karen off South Water Caye and came over coral reef upon a giant ray buried in the sand. I backpedaled and alerted Karen and brought her over – and he was gone. Just a cloud of colloidal sand in the water.
So I took off to find him. And there he was in the distance, pectoral fins undulating. Biggest one I’d seen, probably ten feet across. I closed the gap. And suddenly two nurse sharks came around a reef. And one of those was the biggest I’d ever seen, about nine willowy feet long with a giant upper caudal fin lobe.
And just like that, we were not the biggest critters in the cove. The sharks and the ray all came by for close inspection and swam right under us. We knew we weren’t at risk but it wasn’t long after that and we were back on the boat! We were grateful and simultaneously unnerved.
Speaking of unnerved, is anyone paying attention to what’s happening in the stock market?
To what, you ask?
The staggering instability of daily prices.
We call that “volatility” and yet it’s insufficient for describing what’s occurring. And nobody commentating on markets seems to be paying any attention. Yesterday in the space of a few seconds, I watched the Dow Jones Industrials go from negative to up 35 points, to up 76 points. I heard a pundit on CNBC say stocks are at session highs and I looked at the TV and the S&P 500 was down about 15 points.
Because just a few seconds earlier they’d been up 19 points.
Understand: Humans are not doing that. Machines are.
Why?
Because the market is securitized. We’ve turned the stock market into the mortgage-backed securities market. Remember that?
Well, WE didn’t. The SEC did.
The Securities Exchange Commission decided to permit options on everything in the stock market. Options expire basically every day, including today, Feb 18, 2026. Monthly VIX options reset today. In February thus far, the daily spread between the highest and lowest prices of components of the S&P 500 is nearly 3.7%. I don’t know how the day will go, but it’s no surprise to see the demand for volatility trades driving underlying stocks higher before the open.
There are 0DTE options. Weekly options expiring most days. Monthlies, quarterlies. On most stocks. On most ETFs, and there are over 4,000 ETFs trading in the stock market. Many of those are pegged to indexes, which likely have futures contracts trading on them.
This is how the securities regulators permitted the securitization of the stock market.
Algorithms running in high-performance computing environments and consuming realtime data can find the fleeting spreads among all those instruments. Spreads are imputed back to the small set of underlying assets called stocks. So prices change continuously.
All investing strategies are aimed at buying low and selling high. Machines can do it throughout the day in what becomes a sort of multi-dimensional array: Is there a stock, an ETF, options on both, a futures contract, where changing prices are not keeping pace and a spread has formed? Go long and short.
Until roughly mid-2006, home prices were rising. Banks bundled mortgages into securities that could be traded independently. Mortgage-backed securities. I’m speaking in general terms only. So long as home prices rose, so did MBS. When home values ceased rising, MBS were like the cartoon character Wile E. Coyote off the cliff, hanging there. And then plunging.
It’s happened to software stocks.
We observed to the team at PANW in early November 2025 that patterns of Passive investment had been cut in half, especially ones tied to the S&P 500 to which PANW belongs. We said it signaled a drop in flows from S&P 500 funds, and that declining patterns tend to precede declining price. PANW has lost more than 25% of its value since the end of October 2025.
Here’s how “securitization” of the stock market has impacted Software in particular and could affect any segment:
- There is a finite set of underlying software stocks.
- ETFs extend reach to these stocks.
- Options trade on both the stocks and the ETFs.
- Options range from daily to quarterly, so a wide band of derivative exposure extends reach.
- The stocks become part of indices and feed into futures contracts.
- Passive money and derivatives drive stocks to new heights.
- Then AI threatens software.
- Passive flows cease, and Active money is too small to absorb outflows.
- Derivatives plunge and are written to zero.
- A chunk of market cap dissolves.
Lesson, investors and traders? Don’t chase price. You’ll be eaten alive by machines. Trade Demand/Supply imbalances. For more on that, see Market Structure EDGE. (Tune in to the Thursday Live Discussion via the “attend a Demo” link.)
And public companies, no amount of telling the story can replace lost waves of Passive flows. Be patient. Position your stock with CHARACTERISTICS to capture returning flows. They’ll come back. They are tides. We can help.
