It’s been a dramatic few weeks in the equity market and retail investors are driving it, Roger Hirst told Real Vision during today’s Daily Briefing.

Retail investors are trading small and often in an options-led equity exuberance, and as a result, the institutional whale is having less impact on direction and on absolute volatility. Hirst said this is basically an air pocket, as nothing obviously structural is driving all that volume.

Hirst said the impact options trading is having on the equity market is linked to contract expiries. The majority of the volume is happening on options with less than two weeks until expiry, and when you get close to the expiry date, gamma picks up, he explained.

Increased volatility is common around expiry periods and it has nothing to do with macro fundamentals, Hirst said. He pointed out that historically we have had air pockets just before expiry dates and therefore they should be on people’s radar.

“They don’t define the direction, but they can be critical to the direction of the market in both directions because of the inventory management that happens around them,” he said. Hirst advised investors to be aware of when we are getting close to an expiry date, as we now are, because they tend to change market dynamics. He believes a lot of the upward pressure we’re seeing will disappear after the September expiry.

While all of this is an exuberance, Hirst said he does not think it is a structural risk because retail investors are playing it from the long side and as long as they’re not using leverage in their margin accounts to buy the premiums, they’re limited to losses only on those premiums.

“It’s not the massive structural short that can often unwind positions,” he said.

Hirst wrapped up the interview with a discussion of the next phase of the market that he believes will prove problematic: the insolvency phase.

Looking at the credit market, Hirst said he sees a big long-term health issue for the market in large cap companies that should be going under but aren’t because their bonds will be bought by the central bank through QE, while the smaller end of the market (ie. mom and pop businesses, restaurants) is going under.

Hirst said we’re seeing a pickup of insolvency at the micro level, and a pickup in zombie companies at the large cap level, and eventually the problems at the micro level will feed through to the macro level. The more zombies you have the worse growth will be, he said, and the misallocation of capital will continue.

“For a strong economy, capital needs to find productive means, but we are in a world where yields and growth expectations are subdued,” he said. “If you as an investor think there’s going to be no growth for 10 years, but the equity market is going up 10% every year, you don’t put your money into productive capital—you do buybacks and then there’s no capital being put into future growth.”