May 1st, 2026 Option Outlook

Inflation Surges, but market doesn't care.

Good Morning! PCE came in much higher, but the market shrugged it off and advanced another 1.1%.

It seems like nothing will drop the market. With a constraint on energy resources, inflation is rising with no indications it is going to slow down. The rally certainly isn’t dealer influenced, as we are climbing significant walls of resistance. Over the past month markets have rallied 14.3% under a constant bid on the order tape, which is against common sense considering the geopolitical and economic stress Main St. is feeling. Eventually the economic reality of Main St. will catch up to the flow and liquidity reality of Wall St., it always does. Timing is hard to pin down. Can the options help?

On the full book, vanna is dramatically negative, and has been getting more negative over time. In June it is dramatically negative, also decreasing as we rise. Over the next 6 trading days, however, there is some bullish vanna.

Yesterday there were quite a few puts bought for next Friday’s expiration. I said yesterday that 7235 would be the place to start to look for a rejection, but that appears to have changed. For today the market has a chance to float up to 7275, although the premarket positive VIX would initially indicate that we can close this initial gap upon the open, and the lack of put protection for today can see a little bit of a further drop. I would want to see puts bought to reinforce a bounce thesis. Meanwhile, the large negative vanna needs to be accounted for eventually, but it doesn’t seem like that will happen today and possibly not next week either. It should happen before June opex.