Jun. 18th, 2025 Option Outlook

US going to war?

Good Morning! A slight down day turned sourer when Trump alluded to entering the Iran-Israel war. SPX closed down .9%

A lot of commentary claimed this could be the beginning of WWIII. While this might be a precursor when we look back on history (especially considering the international acceptance of a pre-emptive attack), this might not be the touchpoint yet. As far as markets are concerned, the domestic issues are more pronounced. The “big, beautiful bill”, tariffs, and resulting bond auctions are a larger issue, as the fears around fiscal deficits and debt are more impactful to liquidity at this time. On that note, today is the FOMC decision. What is the option outlook as we prepare for it?

There is some event vol for FOMC, but not a whole lot. The recent straddle prices have been roughly $35-$40 and today’s is $44. The concerns mentioned yesterday about the Friday morning options remain.

Both in the all-expirations and this week’s vanna, we are seeing dramatic shifts to negative vanna. 5950 and 5975 are huge strikes to the downside that can be threatened upon a drop. The upside can get to 6025 but accelerate towards 6075 if the market sees the FOMC as a positive event. It would have to see it as a dramatic positive event however since event vol is lower than normal and the overall vanna is negative. In short, once FOMC is done, the default is down towards 5950 swiftly, with mild support below there. If we get below 5950 with velocity, I expect a vol event. Yesterday we did overvix, but it was not a vol event. This is a shaky time for markets, I would hedge anything bullish you have.