Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 80bps with Jobless Claims at 8:30 AM ET.

TLDR: The gamma picture, and our general expectations are essentially unchanged from yesterday’s note. We default to looking at a range bottom of ~6,500, buoyed by the 3/31 exp 6,475 JPM strike. 6,700 is the major upside resistance. That said, we want to focus on some very strange vol movement today that is a bit spooky. Given this, we are treading very lightly this AM.

Starting with VIX & Oil – we see VIX up 2 pts with Crude adding 3. Something weird is happening in the SPX vol space this am. We have been marking <90 Crude as the “all clear” equity mark, and its apparent that oil doesn’t have yet have the “all clear” signal. So the oil rally is certainly a signal that equity vol should be higher. It does seem like there was a fair amount of relative happenings overnight with the respect to the Iran situation, which explains the oil up->vol up situation. That said, we see little shifts in various Iran-related Polymarkets.

Putting this into context, the red plot point is today’s USO move vs VIX move, using premarket marks. The last 5 days are in black, so you can see that this VIX move is relatively big.

This relatively big VIX jump is being confirmed by the SPX vol surface, which is up a meaningful +1 vol point across the board. Below is 1-month SPX skew from last night (gray) to today (teal). This is looking like a parallel shift across the vol surface, not a distinct change in say put skew or call skew, or only in near-term options. In other words: Traders appear to be suddenly bracing for vol.

To be honest, we were ready to check our vol model settings because this strikes us as so odd. However, the big VIX move is an independent confirmation that something odd is underfoot.

If it was a single event, like an anticipated announcement, you would think that it would just be short dated vol that was higher. That’s not really the case as you can see with the comparison of SPX term structure day over day which highlights a shift higher out into time (i.e. equidistant gap for all expirations). Yes, the SPX dropped ~1% which will naturally raise ATM vol measurements, but if there was a sudden “Iran deadline tomorrow” situation, you’d expect to see near term IV’s currently much higher relative to longer dated.

A counter point to this is that the 0DTE straddle, which is currently at a moderate $52/80bps (ref 6,535). That $52 is not particularly rich, one could argue its light given that ES futures are already down 80bps.

The end summary is this: The strange vol movements suggest the market is bracing for a sudden move. We default to being concerned that this could be a mark of jumpy downside, but with Trump you always have to watch that right tail, too. Given this, we are likely going to be sitting on our hands this AM until the vol surface either re-regulates, or we see a meaningful conformationally move in stocks. If vol stays higher and the SPX pierces <6,500, we will be on the lookout for a sharp downside move.

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