Jun. 17th, 2025 Option Outlook
Relief rally?
Good Morning! The market recalibrated after the initial shock of the beginning of a direct war between Israel and Iran to close +.9%.
The vol event triggered on Friday was satisfied almost immediately yesterday morning. As a result, the vol event trigger has a win rate of 26-2 on what is typically priced as a low probability event. This time, if it wasn’t met very early on, it would have been in danger of another loss. This is because the rest of this week has the potential of being quite volatile, with monthly expiration options ceasing to be traded 2 hours after the FOMC press release but settling a day and a half later. It is an anomaly that bears paying attention to. What is the option outlook for this critical time?
So first, I’m not going to speculate on anything with the FOMC. I think the SEP will show fewer cuts than anticipated, but I’m not in tune with what anyone is anticipating. As such, this is not a fundamental article, but one showing the option landscape for these events, and showing an if-then scenario for whatever fundamental outlook you deduce.
The 30DTE outlook is bleak, with negative vanna. The JHEQX 5905 strike is prominent. If FOMC is seen as bearish, 5905 would be the first stop on the downside, and I would expect some slowing of the market around that level. However, puts need to be bought, otherwise the market will see continuation. I think we would see overvixing in earnest starting at 5900-5905.
A bullish report can see SPX climb up as high as 6100 and possibly threaten all-time highs. But because we are in a negative vanna regime, this report would have to be unequivocally bullish to accomplish that.
The premarket today is a little red. The ideal positioning to get ready for tomorrow is at 5975, so I wouldn’t be surprised if this downside has some legs to that area for today, but there is also some overvixing in the premarket, so the default is a gap close, and the market closes relatively flat, pending a surprise in the 0DTE option landscape upon market open.