Jan. 16, 2025 Option Outlook

Will the CPI boost continue?

Good Morning! After a relatively neutral CPI reading, markets were relieved that it wasn’t increasing and decided to shoot up ~2%.

While 5930 was seen as a target yesterday, we overshot that thanks to 0DTE positioning at 5950. Moves from data like this will typically retrace into the strong vanna strikes, especially during opex week. Was this a corrective rally, or should we expect a breakout to the upside?

Opex positions during opex week typically has the strongest impact, and opex is currently showing a strong negative vanna. That causes me to think we should see a retrace into the end of the week with 5900 as support. This volatility will melt fast since today and tonight are the only trading hours that any of these options can be hedged or traded. With 1.25B to melt in short order and no real catalysts to move it up to the 6000 strike, I think it is very possible we retrace into 5900 by week’s end.

Next week however is very strong positive vanna with $2B to melt. 6025 looks like very strong resistance but wouldn’t be surprised to see an advance after this week to 6000 next week, which is in that little valley there.

The all expiration vanna declined from yesterday’s advance, but I think that was from this week’s options. In short, I think markets can retrace back as far as 5900 by Friday, but that would be a good opportunity to execute some long positions for next week and possibly into February expiration.