Macro Theme:

Founder’s Note:

Futures are down 50bps, indicating an SPX open near 6,450. Crude is +2 points to ~97, and the VIX is a few ticks under 30.

TLDR: We are assuming crash positions.

Trump yesterday tweeted about a 10-day hold on US operations, which boosted futures to 6,600 just after yesterday’s close, but we now see ES back to 6,500 as the Middle East sees significant conflict ongoing today. The upside situation remains based on an actual deal being made – and if that happens its apparent the equity market will rally 3-5% in very quick fashion. When a deal happens is anyone’s guess, but the right-tail risk is real. You can position for this “who knows when” upside with OTM call ratios. We flag this upside potential (which at the moment seems low-probability) more because being short this market with hard deltas/long vol could be a widow-maker – just as being long hard deltas could be due to left tail crashing.

Before we move on, we want to talk JPM 6,475 which expires on Tuesday (3/31): assuming things don’t materially escalate (i.e. Crude >100) over the weekend, we think the idea of a move back to the JPM 6,475 strike into 3/31 expiration is real, and a legitimate play. Given this, we have some trades on that are “soft pin” plays into this strike for Monday. We say “soft pin” because we are playing for the ~6,475 area (i.e. wide condor/fly), not a 6,475 strike pin (ex: no cute, 5 point wide iron fly).

Now for the downside view…

As you can see above in TRACE, its still negative gamma across nearly the entire SPX range, with the exception of a pocket of short 0DTE puts near 6,330. That area near 6,300 is quite frankly the only excuse of support we could make – but its a fairly weak zone given its smaller 0DTE positions (several strikes in the ~7.5k contract range). We cannot imagine why anyone would want to hold short vol risk into the weekend, and so that likely keeps a downside bid into this market.

Let’s also again be very clear here: This is the type of stuff major crashes are made of.

We do not state this lightly, but there is a real lack of faith in resolution to a “known unknown” (Iran), and the VIX is about to go >30, which is a signal that convexity is about to enter the market. This past Monday AM wrote about the chain risk-reaction that seemed to have been set in motion, detailing the higher oil->higher rates->higher equity vol (read here), and a pre-market Trump tweet about pausing operations ripped futures +3%. The somewhat scary thing here is that the market is seemingly no longer believing these tweets, as the half life of equity-bounces related to them is dropping.

So now we are staring down CL about to go +100, VIX about to go +30, and US rates about to “pop off” with the 10Y +4.45% (8-month highs).

Let’s talk about the risk of convexity. Yesterday we flagged the very odd movement in equity vol, relative to oil movement and a relative lack of obvious headline risk. In other words: we couldn’t find an obvious reason for equity vol to be bid like it was. Lo-and-behold yesterday was the largest SPX down-day in the last 30. This is not us spiking the ball on a call, its an acknowledgement that “something was/is up”.

On this point it remains fairly surprising that the VIX is at ~30 given SPX realized vol is near 13% (go here to review this topic). Vol pros will say “this is a rich vol premium”, and that would be correct. However, that premium is rich relative to the low movement of the SPX. Before we move on note SPX moves of 1.75% = SPX RV of ~28%.

The chart below shows SPX RV going into various VIX levels vs SPX RV after that VIX threshold was crossed. For VIX +25 environments, SPX RV is often 15-25% (second plot down). Given this, you could make an argument that this current environment is on the low end of normal as SPX RV is ~13%. Given all that is breaking in markets (commodities, rates, etc), the lack of actual SPX movement feels really odd.

When the VIX crosses 30 we see that SPX RV is typically >25% – 30%, which is the type of vol we saw yesterday. We haven’t crossed VIX 30 yet – but that seems to be on deck here. What’s our point? 1) SPX RV has been light, and 2) we think the risk here is that SPX starts to “earn its implied vol”, which is where the crash part comes in. Why? Because 1) oil seems poised to go >100 and 2) We do think the JPM strike was offering a bit of stability, and once thats gone we see no obvious support.

Here is the last cautionary tale. We’ve often discussed the risks in the “transient liquidity” provided by 0DTE options, and the leverage/convexity embedded in this derivatives-based market. Last August, it was our view that it was nasty options positioning, layered with some forced trading on carry-trades which led to a “broken VIX” move +60 (black arrow). There was no geopolitical or obvious credit risk with that VIX spike – just bad positioning.

We then saw VIX go +60 in the April Tariff Tantrums. You have to go back to ~5-years to March ’20 and Covid to find the previous instance of VIX 60. The only other time in history of VIX +60 was the GFC in 2008.

This highlights the wild risk we can make a case for in this market: its a new liquidity paradigm that should reframe whats possible in true risk-off markets. This is why we are so worried about what comes next, and also why hedging with some +VIX 50 or even 75 calls/call spreads isn’t all that crazy.

©2025 TenTen Capital LLC DBA SpotGamma

All TenTen Capital LLC DBA SpotGamma materials, information, and presentations are for educational purposes only and should not be considered specific investment advice nor recommendations. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. VIEW FULL RISK DISCLOSURE https://spotgamma.com/model-faq/disclaimer/