Nasdaq 100 Rallies and Gold Slides as Geopolitical Fears Recede
Nasdaq 100 Rallies and Gold Slides as Geopolitical Fears Recede
Also, 10-year T-note, gold, crude oil and Japanese yen futures
- Nasdaq 100 E-mini futures (/NQ): +0.73%
- 10-year T-note futures (/ZN): -0.03%
- Gold futures (/GC): -0.54%
- Crude oil futures (/CL): -1.3%
- Japanese yen futures (/6J): +0.07%
Fears of a widespread, region-engulfing conflict between Israel and Iran appear to have cooled off over the weekend. Although both countries continue to lob missiles and airstrikes at one another, traders are looking beyond the tragedy. US equities have erased losses from Thursday and Friday, while crude oil prices have dropped more than 7% after touching their highest level since last July. If only to provide further evidence of the blasé attitude of traders, consider this: Treasuries, gold and the US dollar are all down on the day — so much for needing “safe havens.”
| Symbol: Equities | Daily Change |
| /ESU5 | +0.77% |
| /NQU5 | +0.73% |
| /RTYU5 | +0.99% |
| /YMU5 | +0.7% |
Dip buyers are being rewarded once again. After all, if markets are down because of World War III fears, isn’t the logical thing to do to buy the dip? The Nasdaq 100 (/NQU5) is trading back above 22000, while the S&P 500 (/ESU5) has traded back above 6000. The spike in volatility has been all but erased, with the spot VIX back to 19 and front month volatility futures (/VXN25) off by more than a full point.
| Strategy: (45DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 20250 p Short 20500 p Short 23750 c Long 24000 c | 64% | +980 | -4020 |
| Short Strangle | Short 20500 p Short 23750 c | 70% | +5090 | x |
| Short Put Vertical | Long 20250 p Short 20500 p | 83% | +600 | -4400 |
| Symbol: Bonds | Daily Change |
| /ZTU5 | -0.02% |
| /ZFU5 | -0.03% |
| /ZNU5 | -0.03% |
| /ZBU5 | -0.17% |
| /UBU5 | -0.21% |
Bonds were slightly lower to start the week as investors prepared for the Federal Reserve’s interest rate decision this week. 10-year T-note futures (/ZNU5) were down 0.03% in early trading. Rate cut expectations show a nearly 100% chance that the Federal Reserve will hold interest rates steady this week. A surge in crude oil prices slightly reduced rate cut bets for later this year, but the base case scenario for a September cut remains in place. The Treasury will auction 20-year bonds today before offering five-year Treasury Inflation Protected Securities (TIPS) tomorrow.
| Strategy (39DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 107.5 p Short 108.5 p Short 112.5 c Long 113.5 c | 61% | +234.38 | -765.63 |
| Short Strangle | Short 108.5 p Short 112.5 c | 67% | +500 | x |
| Short Put Vertical | Long 107.5 p Short 108.5 p | 86% | +109.38 | -890.63 |
| Symbol: Metals | Daily Change |
| /GCQ5 | -0.54% |
| /SIN5 | +0.25% |
| /HGN5 | -0.22% |
Gold prices pulled back this morning after surging last week on the Israel-Iran conflict. Traders are now putting the worst fears of a broadening war behind them as they see the conflict remaining contained in the region. Retail sales data due tomorrow and the Fed interest rate decision later this week could influence prices as traders keep an eye on the conflict. Gold prices (/GCQ5) dropped over 1% in early trading despite a pullback in the dollar, signaling that investors’ fears of the conflict in the Middle East are contained for now.
| Strategy (42DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 3200 p Short 3225 p Short 3650 c Long 3675 c | 67% | +670 | -1830 |
| Short Strangle | Short 3225 p Short 3650 c | 73% | +3810 | x |
| Short Put Vertical | Long 3200 p Short 3225 p | 84% | +330 | -2170 |
| Symbol: Energy | Daily Change |
| /CLN5 | -1.3% |
| /HON5 | +0.3% |
| /NGN5 | +4.24% |
| /RBN5 | -0.27% |
Energy markets have seen a dramatic increase in volatility in recent sessions, with crude oil (/CLN5) seeing the highest relative volatility readings since the start of April (recent IVR high: 115.9). That said, oil volatility has started to contract (current IVR: 108.3) amid reporting from The Wall Street Journal that Iran was seeking a ceasefire with Israel and the US. Crude oil prices are off more than 7% from their highs last week.
| Strategy (60DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 55 p Short 57 p Short 83 c Long 85 c | 66% | +440 | -1560 |
| Short Strangle | Short 57 p Short 83 c | 73% | +2580 | x |
| Short Put Vertical | Long 55 p Short 57 p | 84% | +230 | -1770 |
| Symbol: FX | Daily Change |
| /6AU5 | +0.65% |
| /6BU5 | +0.27% |
| /6CU5 | +0.35% |
| /6EU5 | +0.46% |
| /6JU5 | +0.07% |
Forex markets are offering the clearest sign that traders are beginning to look beyond the volley of Israeli and Iranian bombs: the US dollar is down across the board, while the Japanese yen (/6JU5) is the worst-performing major currency otherwise. The clear lack of demand for safe havens is one thing, as is the fact the Federal Reserve is likely to keep rates on hold this week and that’s still not enough to keep the greenback on firm footing.
| Strategy (53DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 0.0067 p Short 0.00675 p Short 0.0073 c Long 0.00735 c | 65% | +175 | -450 |
| Short Strangle | Short 0.00675 p Short 0.0073 c | 72% | +737.50 | x |
| Short Put Vertical | Long 0.0067 p Short 0.00675 p | 85% | +87.50 | -537.50 |
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
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