Jun. 16th, 2025 Option Outlook

A new war

Good Morning! A new war broke out between Israel and Iran, which caused a -1.13% SPX return.

Unlike Israel-Hamas and Ukraine-Russia, this war has the potential to involve the US, so this should shake the markets quite a bit. In fact, although light, it actually did cause a vol event, meaning we should see 6040 SPX within 3 weeks. What are the chances that this vol event will come to fruition?

This week is going to be a strange one. We have the Juneteenth holiday on Thursday, which normally would be options expiration on the monthly tenor. Instead, those options are going to stop trading Wednesday after the close. These options will still be settled on Friday morning. This isn’t a concern if there was an expectation of a calm period between Wednesday and Friday, but Wednesday is also FOMC day, meaning there will be 2 hours between the press release and the time these options stop trading. The sentiment is that “the next day is the true FOMC reaction”, but the next day is a holiday in this case with a bunch of options that cannot be traded but can only be hedged during an illiquid time. Throw in the Israel-Iran war, and you have a potential hotbed of volatility.

For this week, there is a lot of support underneath the market, particularly at 5950. There might be a little bit of relief from the US not being involved in the conflict (yet), so I think if we are to satisfy this vol event, it might have to be done within these first three days.

Also, for the past week there has been a tectonic shift in the option trades we are seeing. Aggregate vanna is now in trouble after the June expiration. We may see a pop to a new high, at least to satisfy the vol event signal over the next couple of days, but it would be a pop to sell.