3/25/25 Live Trading Room Market Recap & Trades
Short-Term Jump Risk
From my 3/21/25 Live Trading Room Market Recap & Trades:
my warning to clients March 10th that VVIX & VIX would peak and IV would compress into OpEx was spot on - so was the call that market would be hard-pressed to get/close above 5670 monthly resistance. Once it does, we see 5783 in a hurry, but we need a macro trigger - like Trump saying on the eve of reciprical tariffs April 2nd: “I was just kidding.”
Yup, that’s all it took - a Sunday night post to set the futures en fuego. From there, we ran 100 points Monday and today tagged my 5783 today before softening.
Jason DeLorenzo of Vol.Land last Monday when he interviewed me gave 5770 by EOM. He updated his call this morning:
Yesterday satisfied the vol event signal on March 10th, making 18 successes and 1 loss of the vol event signal. As a reminder, a vol event is when we overvix by 2 points or more. When that happens, our studies have shown we return to the previous day’s close within 3 weeks.
I had also started that the whole way down that despite the overvixing, I wanted to see a vol event to cap a low… and we got that on March 10th. If you remember, March 11th started the undervixing that happened for a week straight as well.
Now that the overvixed signal is satisfied, is the door open for downside now?
The unwind of shorts in equities is causing the bear steepener I called out last week once the 10Y2Y tagged and reversed at +.23bp. And with that, equities can continue higher if 10Y continues higher into 4.44%.
Ironically, as treasury yields rise it is sending Trump a message that he needs to tariff a lot more if Bessent is to get his wish for falling US dollar with yields. In a nutshell, equities are positively correlated with US yields of late - which is the opposite of what Trump Admin wants and needs.
Going Nowhere Fast
This relief rally has helped oversold technicals reset and allowed both calls and puts to be cheap again into the April 2nd tariff day.
As SpotGamma points out,
Tariff Day looks like its being priced as a binary event, like a CPI. IV's before, at 14%, are pricing in essentially no risk. IV's +2 weeks out, are also at riskless 14% IV.
Either nobody knows how to price them in or just doesn’t believe Trump. It’s further support for my GOING NOWHERE FAST theme while Trump admin negotiate tariffs.
Also, the lack of hedges for Tariff Day support my thesis of why hedge if MONEY GOES HOME.