Macro Theme:

Founder’s Note:

Futures are up 1.3%, NQ +2%, with CL -5% to $80, which matches the April low. This after a deal with Iran was apparently signed.

With that, the SPX has emerged into a strongly positive gamma territory with 3 large positive gamma strikes above. Given this, we anticipate the SPX holding in the 7,500 – 7,600 range into Wed FOMC/VIX exp. We are shifting our Risk Pivot to 7,475, from 7,390, as we think there is a “worst case” 7,500 pin into Wednesday, but if an Iran deal seems questionable, then a break <7,475 indicates an unwinding of recent longs, which opens up sharp declines. With a rather quiet SPX now anticipated, we would expect the AI related names to continue on their various surges.

Vols are remarkably unchanged with this news, as you can see here via the 7/17 exp for today (teal) vs Friday (yellow). If you are asking why the VIX is lower, its due to the “fixed strike slide“. The fact that fixed strike vols are not sinking is a bit of a concern, and may simply be due to the sharp rally in futures overnight. We will be watching this dynamic closely, as vols should come in if the market believes in a deal. Adding to the intrigue here is of course FOMC on Wed, which could be holding vols up.

On that topic when you compare SPX fixed strike vol (light teal) vs SPX term structure (teal) you see elevated fixed strike vol at upcoming key economic points. This is a signal that traders are now heavily watching the rate/macro piece – but there may be some path dependency here. If Warsh waves off some of the inflation due to Iran/etc, then maybe he can done down the importance of upcoming data points, and that reduces the vol around these events.

The sharp rally into this weeks major OPEX should be sustained if Warsh is fairly neutral, as it is a 3-day weekend coming up which allows traders to sell vol. Given this, we would anticipate a possible market high into Thursday’s close, and then look for some consolidation next week (i.e. OPEX temporary top).

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