I just watched Kevin Warsh video a second time, just in case at 3am in the morning my brain was tired and I missed something. But no, I have not, because, as a matter of fact, he didn’t really say anything relevant, but one thing: “a fed hike won’t directly impact [crude oil prices], but aims at containing that inflation from spreading into other sectors”.
When I heard that a few hours ago, I immediately took a look at oil futures and, to my surprise, saw no reaction. Question in my brain right away: “Why?”. I did not take long to find the answer: WTI futures options OPEX 1 trading session away.
After that, I started to look at options market positioning across the board, and all the pieces of the puzzle began to fall into place.
Forget about the fake narratives and headlines; we can tell they aren’t working. When the headline of a “peace deal” between the Houthis and the US dropped - so fake that not even Trump dared to say a word about it when he usually loves to flex his “winnings” - oil futures did not move. Once the whole barrage of fake news and narratives across socials and MSM stopped, oil futures started to trend higher quickly, and 30 minutes later those busy manipulating the tape heavily left a huge fingerprint all over it, as you can see in the chart. The headline used as a cover-up? ARAMCO will be able to resume limited E-W pipeline operations in a few days and restore full operations in 6 weeks, “bypassing” the damaged sections. EXACTLY THE SAME SCRIPT US SECRETARY HASSET RECITED A FEW HOURS EARLIER, while he was also claiming 18mb of crude left Hormuz on Tuesday (that FYI is pre-war levels). Fun Fact: he claimed that AT THE SAME TIME Fox News reported Iran fired upon a vessel trying to transit Hormuz, also injuring US Military personnel ONBOARD the vessel.
I don’t want to spend more words commenting on this whole garbage; all of you here are smart people who can complete the whole picture unless you already did so.
Anyhow, back to the options market because the key to deciphering what moves the markets in the short term lies there more often than not nowadays.
What was remarkably odd was Energy stocks opening, all deeply in the red. Why odd? Because it was disconnected from oil futures too much. An open slightly in the red would have been fair, but not deeply. Strong market shenanigans aren’t unusual around large OPEX, especially around quadruple witching, and it did not take long to complete the puzzle. Thanks to that timely dump at open, market makers GEX on Energy stocks and ETFs options expiring THIS FRIDAY across the board (See Chart2) flipped from positive to negative gamma. As I explained in the 3rd episode of “Options By Dario,” when GEX is negative, market makers have to “chase” the market to delta hedge, amplifying moves in the underlying asset. BINGO.
I can list many firms I suspect could be behind that, either alone or coordinating, but I will keep it to myself since it adds no value to this commentary. Likely the same firms that have been supporting the government's efforts to suppress crude oil futures prices; this is my gut feeling.
At this point, I believe it is clear how, when you are in a trade, it’s critical to always have in mind the fundamental, technical, and structural market picture to be able to manage your positions or catch an opportunity. The exact reason why, in the last minutes of trading, I decided to sell 50% of my deeply ITM CRAK calls and buy more PR 23$ Oct options.
Not because I believe less in my Diesel analysis; as a matter of fact, a few hours later, pictures of US gas stations out of Diesel started even surfacing on social media, while ALL oil upstream companies were dumping on Wednesday, bids for refiners remained strong (VLO even closed green), and despite the heavy hand trying to crush futures, Diesel remained flat. But risk management discipline is key, and my STRICT rule is to never go beyond 2% high-risk options exposure in my investment portfolio.
Since I saw in the chats that people shared interpretations about gold, silver, and stock moves on Wednesday that I agree with, I would not spend more words on that either. There is only one thing I already shared in the chat I would like to highlight here again: those very odd large SPY and QQQ puts, and VIX OTM calls trades right before the FED were incredibly timely and are now all in profit already. However, with the benefit of hindsight, considering that Warsh did a good job of delivering the most neutral possible message not to trigger a volatility event in markets, I believe those weren’t bets on the FED but on something whoever is behind it believes might occur in the near future; otherwise, they would have cashed out all those profits already rather than keeping those positions open at the close.