Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 25 bps after CPI. CL is >100, with VIX at 18.6.

We watch the hidden left tail here, with oil back >100. That risk is obvious even though it has not yet mattered: oil->inflation->rates.

Pushing back against left tails is SPX gamma, which remains positive from ~7,300 to ~7,500. This, combined with positive single stock gamma, should keep volatility muted in through OPEX/NVDA 5/15 to 5/20.

The idea of broadly ignoring Iran War tail risk in favor of the right tail risk of “everything AI”, particularly after the rolling “We Have a Deal!” (psych!) headlines, has been epic. In Nomura’s recent piece they highlighted 3 month QQQ skews, and you can see the massive moves out of puts and into calls. This is causing the risk reversal to tank (top left), with call skew surging (bottom left) and put skew tanking (bottom right). Meanwhile the ATM IVs have been stable, which syncs with “~18-20 sticky VIX”.

The takeaway from this is that there are two narratives that are priced for perfection: 1) Iran not causing larger problems and 2) AI CAPEX projections meeting massive expectations. Damages to these narratives could cause some selling in stocks, but that is likely not a story until after China and NVDA have their say. That said these narratives are extremely crowded as the charts below show.

So, what’s the trade? We like owning VIX calls for tail protection, and playing for short term “catch up” in AI/tech related names. Currently we have our Risk Pivot holding down just under 7,300, implying that a short/small correction is ok, but <7,280 is the signal for a larger, more meaningful risk-off move. Lastly, for true masochists, we think put ratio spreads/broken wing put flies, etc can work in the highest-flying tech names as if they reverse we could see some “stock down, vol down” moves.

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