As long as crude oil stays above $100, we will also be looking to fade market rallies, like with short stock simply because puts remain quite expensive, writes Brent Kochuba, founder of SpotGamma.
With the S&P 500 Index (^SPX), there is 6,600 resistance despite news there could be an end to this Iran debacle. Support on Tuesday was around 6,250, but we think that may drop toward 6,000.
The market was obviously up after President Trump said he'd consider pulling out even if the Strait of Hormuz isn't open. That seems to us like a far cry from “deal’s on,” and the fact that crude oil rose back near recent highs is an indication that the equity rally is fade-able. We will see.
Meanwhile, we saw short dated IVs (0-2DTE) up yesterday versus Monday night’s close, while longer dated (>1 week) IVs were lower after the Trump “we'll just leave” Tweet. That vol lower is a good thing for bulls. But again, why isn't crude coming in?
As all this gets parsed through, we continue to want to own rolling 0-1DTE SPX call ratios or broken wing flies – in this case playing for a move into 6,500 (max move to 6,600).
