Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are up 60bps, with CL – 6% after Trump signaled Iran negotiations start this afternoon.

Interestingly the NQ is up only 25bps vs ES 60bps – top tech is down (SMH, DRAM -2% premarket). Seeing ES vol > NQ vol is a bit odd…

The SPX is above the Risk

Pivot,

and is surrounded by positive gamma. This implies some stability in the Index, while IV also coming in. That IV contraction is the vanna-based tailwind that helps upside drift. For today the major resistance area is 7,570-7,580, with support at 7,500. We are also sliding the Risk Pivot higher, back to 7,480 from 7,450 as negative gamma dominates <7,480.

What injected upside into the equity futures was an alleged negotiation with Iran this afternoon. Iran denies it – who knows.

What matters is that oil markets believe it, and as a result CL is -6% to $79. Lower oil helps with rates, which were starting to do some weird things, but we see the US30 yields coming in slightly (from ~20 yr highs) with the Iran news.

Here is why us options guys are talking about rates:

TLT (US long bond ETF) is sporting an IV rank of 40 with Put Skew at the 98th %’ile (!!!). Meanwhile, calls are at the 2nd %’ile. No one in the options market is positioned for long bond bid (yields lower). Meanwhile, people are smashing the QQQ put skew (14th %’ile) while putting in a moderate bid to upside calls.

Those two signals are seemingly at odds with each other: increasing bond yields and higher stocks. Obviously if Iran shifts to piece, the bond dynamics likely change, and equities maintain their bid. That being said, there is not much more vol to sell in the Q’s after traders smashed it post-Situational Awareness (SA). Keep in mind: volatility is an asset that is heavily traded. So you can milk the vol after being able to blame AI-tech downside on SA & Korean margin calls. The QQQ vols are saying the “easy gains” on this trade have been made.

With the index vol selling single stock vols reads as bid. This is pushing COR1M (correlation) back to our <8 “we want to hedge” levels. If the AI-trade indeed has renewed legs, and the Iran deal is material, then this is likely a bull train that persists into OPEX (8/21), and so we want to maintain equity longs while above the Risk

Pivot

(7,480). Simultaneously, there are several things that could trigger a vol spasm here, and so we want to start dipping our toe into >=1-month SPX/QQQ put spread hedges. If SPX breaks <Risk

Pivot

then we will look to press shorts.

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