May 6th, 2026 Option Outlook
Peace?
Good Morning! The prospect of peace drove SPX up .8%.
It also seems like the premarket is showing a follow-up .8% gain on some concessions from the US about the phrasing of the denuclearization negotiation timeline.
For weeks now I have been saying this week is the last week we are showing bullishness. Once a peace is validated, there are no more geopolitical catalysts that can distract from the fact that the Hormuz disruption is not going to end for months. Once we experienced that short squeeze last month, I think shorts stayed out of the market until peace headlines would no longer threaten them. It is ironic that the last week of bullishness in the options market is the one the peace headlines come.
Where do we head from here?
May opex is still relatively neutral and June opex is still very bearish, but this week has shown a bit of bullishness. There is a very strong resistance at 7350. The one thing to keep in mind is that market positioning skew is roughly 3 points above market skew, meaning market IV is too low compared to the positioning skew. It is setting up for a rug pull possibly starting next week with the latest timeframe for that rugpull being June opex. With May opex being relatively neutral, we could just see small tremors in the market before a flush is possible that would test 7000. If that test fails, markets can drop as far as 6500.