Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 40bps, VIX <18, and WTI hovers near 105.

While there was some cautious trade yesterday afternoon due to an uptick in Middle East violence, markets have moved past that. The TRACE gamma map shows dealers remain in a positive gamma stance, which should continue to support stocks. Today’s 0DTE SPX straddle is just 42bps, suggesting that traders do not see any headline risk, either. It’s hard to deny the supportive strength of positioning, too, as the SPX easily absorbed some kinetic headlines yesterday afternoon.

We’ve been vocal about owning tail risk into this Iran situation. Yesterday was a very short reminder of two things: 1) the tail remains, but 2) no one cares. Quite frankly we aren’t here to complain nor suggest this is wrong – it’s simply the fact. And so, we must continue to hold core equity long while the SPX is > our Risk Pivot : 7,180. <7,180 will be our “this time is maybe different (for shorts)” signal.

The stock up, vol up dynamic was a huge driver of recent gains. Those high single stock IVs are now coming in as earnings pass (put skew coming up, call skew coming down). With massive gains having been made, and a few key AI/semi names remaining to report, the question comes to what the equity driver will be going forward. We’re not suggesting that the AM/semi space is a short from here, its more of a the idea that the rate of change should come down.

Given that traders do not want to hedge tail risk, if the stock rate of change comes in then realized vol should come in, and that gives some vol premium to compress. That should keep a supportive bid into stocks.

We were vocal about selling AMD call skew into earnings, with the idea that the call IVs were overheated. The stock is up 65% in April, leaving both the call skew and IV both remain statistically very elevated, with traders dreaming of further +20% gains with earnings tonight. While we keep these longer dated short calls, we will be looking to hedge out some risk with some Friday exp broken wing call flies, or similar, to hedge out the risk of massive upside.

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