Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are lower to start the week: ES -40bps, NQ -50bps

Oil is higher on various Iran developments: WTI +5.7% to ~$87, Brent +4.7% to ~$95, which unwinds part of Friday’s 11% “Hormuz is open” collapse.

Earnings from Tesla, Boeing, IBM, and ServiceNow on Wednesday.

SPX closed Friday at an all-time high of 7,126. The SPX is up +12% since 3/31, with the NDX holding a 13 day winning streak – its longest since 2013. OPEX has now rolled off, which reduces the dealer gamma cushion, however it remains net positive gamma. Everything is setup for a short term correction here, with 7,000 the first major support line. Obviously an official “deal is done” should result in a market pop.

The SPX added 2% from Wed VIX expiration, and through Friday’s close as the alleged Iran peace deal had major legs. This had SPX at all-time highs, and various volatility markets at recent lows – right into OPEX. Our view has been that OPEX would lean to a short term top in stocks, and that idea is being sharply tested against the “net positive” Iran headlines. We weight things as “net positive” because Oil did plunge 10% on Friday, to sub $90.

Another core argument we’ve been making is that the volatility crush & call chase levered up this stock market rally, as traders rushed to sell hedges and pile into megacap tech (and some memes). On this topic, charts like this of “major lows in the Put/Call Ratio” are making the rounds. While normally we throw a flag on charts like this – not this time.

Here is single stock

call volume

(green) vs puts (red), and you see the surge in

call volume

s. This was greatly concentrated in the Mags (+70%), as those names reflated from near term lows. Another core takeaway from this chart is that put interest in single stocks never really surged after the Iran situation started, and remains quiet.

This turns us to the final piece: correlation/dispersion. Long time Members know that a COR1M (CBOE Correlation) reading of <8 is a certain risk flag, and the last few days have seen COR1M test <9. This is a visual depiction of traders piling into single stock calls while they sell Index options. There is indeed some pre-earnings effect here, as single stock options have a vol bid into earnings, but the flip from “doom” 2 weeks ago to fresh ATH Friday, all while an official deal isn’t done, speaks to a levered chase that is ultimately unstable. If a deal is done, and we see good tech earnings this week, well we will have nothing to really complain about until this COR1M goes fully down into an over-bulled position (<8).