Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off by more that 10bps as oil rises: CL +1.5% to 97.5.

PPI 8:30 AM EST.

The 0DTE crowd as come it to offer their support, for today, below <=7,600. Given this, we think 7,600 is a likely low for today, which pares well with the idea of a “grind down until support is gone” thesis from yesterday. Forward from today, though, things are looking not-so-great. You can see this in the TRACE forecast below, where we see nothing but negative gamma <7,600 from Friday out to Sep OPEX 9/18. Given this, we are going to move the Risk Pivot to 7,590. Either Iran & rates chill out from here, equities hold 7,600, and we start a mid-term rally, or we plunge <7,600 into that negative gamma and rates spiral with Iran unfortunately getting even worse.

With PPI today, and CPI tomorrow, we will likely just see event vol contract a bit. The market is pricing in a 65% chance of a hike net week, and PPI/CPI may move that estimate towards the 80s. Regardless, if Iran keeps going the way its going then equities are going to respond negatively, as higher oil is only going to make the rate situation worse.

Bessent is actively out there trying to jawbone rates lower, but its not working. 10 year yields (candles) just put in fresh highs, and you can see how correlated this is with oil (CL, blue).

The Iran situation is clearly starting to stress the tape. Here we see Compass with a 3-day history, and while IWM & SPY IV was absolute bottom basement a few sessions ago, its starting to lift. We also see QQQ sliding towards a put skew. Meanwhile, oil (USO) is starting to see a lift in call skew (green arrow). We think its prudent to start adding some 1-2 week out put spreads and/or flies in IWM and/or SPY, given they still have relatively low IVs.

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