Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 40bps, with no major news on tap.

The peace deal has allegedly been moved to Friday, and with that we see CL roughly 2% higher to $95.

VIX remains elevated, at 19.8, and likely holds a bid due to the Iran situation.

TSLA: -3% after earnings

TXN: +10%

We are seeing the soft spot in gamma persisting at strikes from 7,000-7,100. The 0DTE has come in, lightly, to offer some positive gamma below, but as you can see is mainly negative gamma into 7,000 for tomorrow and dates ahead. The problem for bulls here is that the 0DTE positioning is light, and it’s transient. One bad headline and that light 0DTE bid gets pulled.

The takeaway is this: we were fairly neutral in our view based on a peace deal potential last night. As that has been pushed off, the support is weakening. Single stock calls are also very expensive now, and we could argue that downside hedges were largely cleared out with the massive April rally. Maybe this market holds flat, but the downside risk has certainly elevated based on positioning.

We’re not macro experts, but our base understanding of the Iran situation is that it’s now a game of chicken. The Strait remains closed, and the longer it’s closed the more durable the global economic impact. Equities have to overcome this potential impact, with AI as the main bullish vector. The issue with AI is that expressing upside in these names is expensive (judging by call prices). And, it’s expensive after a massive rally back to fresh ATHs. What this has done is max out, the correlation/dispersion proxies. Long term Members now that we will essentially go short anytime the COR1M breaches <8 – but that is in a normal environment. Currently this metric is near 11, as you can see below. We don’t want to overweight to an indexified volatility metric, but it’s an excellent graphic depicting the current situation: index vol was sold off (so there is little VRP), and equity vol is bid. Yes, earnings are “naturally” driving COR1M lower due to the related event-vol, but this is low even given that.

The 11 seems quite low given we have a major conflict, with major implications both to supply chains and interest rates. The problem is that the peace deal is always T+1 (or 3 or 4), and at some point those delays are going to matter.

The vector of bullish attack here has primarily been Mag7 and semis. SMH just had a 13 session win streak, the second longest in history, which resulted in a blistering +24% rally. Maybe this level is ultimately warranted given the AI economy, but, in the short term, the rate of change is hard to sustain. Absent an Iran deal – should semis contract, what holds the market up?

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