Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 1%, with VIX at 30. Oil is up ~1%.

TLDR: Given put/vol prices we think playing downside via options has gotten too expensive. We sure as heck don’t want to be short vol, either, so we’re left to shorting stock if we want to play downside. What we are looking at is cheap ways to play violent market rallies, in the event of a risk-on move. Short dated call ratios or broken wing call flies can make sense as cheap lotto tickets. On any positive development we think stocks can rally 2-3% into the 6,700-6,800 level.

Update: as we’re about to ship this note (7:30 AM EST), Trump has shifted to a delay in strikes for 5 days. Given this, and the sudden market rally, we highlight the value of call ratios or call flies here, as equity market rallies can be violent, and its likely vol comes in with it. We will offer a post-open update in light of these developments.

This is the most important chart there is from our options-based perspective: VIX (blue), CL (oil, candles).

The latest with Iran seems to be that there is some deadline tonight that ends at 8PM EST, tonight. What that actually means, we don’t know, but we can say it likely means oil & equity vol both remain higher for today.

With Put Skews +90th %’ile and vols quite high, buying outright puts here makes little sense. If you have to hedge, then maybe put spreads or put flies due to the cost & vol sensitivity. But – that’s for regular equity traders like most of us. Other types of traders, like credit traders, may suddenly find themselves as forced buyers of equity puts. Why “forced”? Because equity is wiped out before debt in the credit structure. It’s in credit-linked risk off markets that equity vol super-spikes as put price-agnostic buyers come in.

And this oil situation is now holding a 1 correlation with US rates (10Y, candles). Remember those Blue Owl etc credit problems from a few weeks back? Those get better with higher rates (and lower equity values), right?

Looking at the gamma-scape – its deep negative gamma from 7k all the way down to 6,000. That means our new “worst case” is 6,000. The idea that we violently plunge toward that number, then rally back into 6,475 by 3/31 is a legitimate one. However, the geopolitical situation ultimately dictates the path here. If more & bigger bombs start flying then specific levels probably don’t matter anymore. Let’s pray it doesn’t come to this, but you can remember into the heat of the Apr ’25 Tariff Tantrum when SPX was moving 5-8% per day.

Lastly, we present Citi flagging the relative decline in SPX 0DTE volume. We’ve talked a lot about this dynamic in the past, wherein 0DTE (a huge source of liquidity) dissipates during risk-off moves. This, we think, is a hidden risk to these markets as “more risk-off” means “less 0DTE” as focus shifts to hedging “known unknowns”, and that means less liquidity.

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