Hey everyone,

 

Last we spoke, S&P futures were indicating a 2.00% loss, the Strait of Hormuz would never be navigable again, an ecological disaster was unfolding as every refinery in the Near East was on fire, Trump had lost control of the situation, the next step was tactical nukes, and oil was peaking at $120/bbl. That was Sunday night.

 

Our plan was to get long a small amount of delta, because that's what Robot Jim and all the data told us.

After a bit of a dip in the morning, the index went up on Monday. And that's that. Futures went up 200 points from their low. Open-to-close +1.50% in SPX.

 

Dear reader, we took our own medicine—we gritted our teeth and bought some E-minis, and we held on tight. But, frankly, we sold a fair bit of it at the Monday close.

Jim's distribution is perhaps half as bullish as before. Probability of upside is no longer 72.8%, but 57.6%. Mean 1-week return isn't 1.66%, but 0.62%.

 

However, the right tail remains intact.

 

What this means is that we should be long OTM calls, not long E-minis. And we will gladly make that swap. Our remaining E-minis will be traded in for a few 7000-strike SPX calls, expiring next Wednesday or something. If the "war" actually "ends" in some durable way, the index could easily cruise up there.

 

Anything useful in the 0DTE data for today?

Not much. Dealers may buy a bit in the way up, but then they sell around 6850. The amounts, in any case, may not be consequential.

 

The SqueezeMetrics Team