Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 90bps this AM – they were down as much as 175bps. VIX is at 22.7, from ~20 on Friday’s close.

Oil is up 6%, Gold +2%.

The war seems to be broadening out at this moment vs a “one (strike) and done” operation. Specifically from a markets perspective, energy prices are the most immediately impacted asset. More on that below.

With SPX the position is the same as we’ve had for weeks, if not months: 6,800 is negative gamma, and that doesn’t “max out” until ~6,600. Interestingly it’s in the 6,600s were some chunky puts were sold – both 0DTE and some longer dated positions. Our view on this is quite simple: <6,800 don’t try and be a hero, even though we’ve bounced at 6,800 umpteen times over the past 3 months. The positioning is there for one quick slip into the 6,600s. If you want to hedge such a move, the headline is that single leg puts are probably too rich. We think put flies can work, and you can get a full rundown on put strategies from last night’s Live (here).

If you want to play upside, we like <5DTE SPX call flies into the 6,900 area. Outright calls are expensive here, and so we caution against them as a bounce play.

What may be the stronger equity bottoming signal here is volatility vs key SPX levels. The VIX at 23 is hardly rich given the recent realized 1-2% moves of futures + the “conflict premium” required in these events (i.e. very high “unknowns”).

Looking at SPX fixed strike vol, we see a 1-2 vol point bump from Friday’s close. That’s certainly meaningful, and the problem with this is that vol is now “at the ready”, meaning its from these VIX 20 foundations where vol can explode (i.e. VIX doesn’t usually go from 10 straight to +30, it simmers first).

If VIX starts pressing into the 30s its a sign that the vol premium is potentially rich enough to signal an oversold equity position (we’d argue ramping VIX/vols can create equity oversold/overbought conditions). If SPX hits 6,600s then VIX likely moves to +30, and that feels like the fatter buy-the-dip pitch.

Oil (USO) was already ripping higher into Friday, in pure “stock up, vol up” form. USO was +18% YTD before todays 7% pop. There is now very expensive IV in this space, making buying options in USO an expensive idea. Obviously the conflict is going to dominate the price of oil, not the IV, but that doesn’t mean the cost to pay to play is too high. XLE IV (red arrow) is fairly expensive relative to equities, but cheap relative to USO. What may be interesting here is some longer dated short put structures in USO – something that bets that when USO reverts vol comes down with it.

Gold and silver (yellow box) are also pushing higher, and their vols are more moderate, but still rich. What’s interesting about these assets is that the price & vol seems poised to go higher as uncertainty reigns supreme.

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