The Option Pit team went live Tuesday afternoon with a special State of the Market broadcast after developing events in the Middle East sent stocks surging in real time.
The S&P 500 had already climbed about 1.3% on the session when reports surfaced that an Iranian official was signaling a willingness to negotiate. Within minutes, the index jumped to a 2.5% gain.
Mark Sebastian, Andrew Giovinazzi, and Olivia Voz gathered on short notice to break down what happened, what the charts showed, and how to trade what comes next.
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(To watch Tuesday's video replay, tap this link.)
A Rip Across the Board
Mark walked through the sector scoreboard and the numbers told the story. The Nasdaq surged roughly 3%, the Dow gained 2.2%, and nearly every sector flew higher. Biotechs led with a 7% jump, housing rallied 3%, and technology climbed 3.5%.
The only names in the red were the "safety" plays: Energy Select Sector SPDR (XLE) dropped 2.3%, consumer staples slipped a third of a percent, and utilities pulled back.
Andrew put the move in context. He noted that overnight, U.S. forces struck a significant Iranian missile depot, possibly degrading a large portion of their offensive capability. That, combined with reports that ships were moving through the Strait of Hormuz again, changed the calculus.
Andrew had written to his students the day before that the conflict would effectively end once the Strait reopened and oil resumed flowing. Tuesday's price action suggested the market agreed. He emphasized that the tweets and headlines were noise: the only thing that mattered was whether goods and oil moved through the strait.
Still, he urged caution. Even with Tuesday's rally, SPX remained roughly 450 points, or about 5% to 6%, below the pre-conflict peak set on the 25th. The situation could reverse overnight.
Andrew told his students he had started buying: SPY, the Q's, Oracle (ORCL), and other names on his list. He also suggested trimming oil exposure, adding selectively to tech and broad-market positions, and considering silver, gold, or emerging markets through iShares MSCI Emerging Markets ETF (EEM).
The Strangle That Costs Less Than a Day's Move
Mark then walked the audience through a strangle setup (buying an out-of-the-money call and an out-of-the-money put on the same underlying) that captured the trade's logic. Over the prior 10 sessions, SPY had moved an average of $10.70 per day. Yet the April 2nd expiration strangle, using the 649 call and 647 put, cost just $8.50.
Andrew called it a bargain. Mark laid out the management plan: sell whichever side runs first for at least 80% of the total cost, preferably more than 100%. If SPY rallied to Voz's 662 target, the call alone would be worth roughly $13, leaving the trader with $2.50 in profit and a free put as a hedge.
Mark also noted SPX equivalents for traders who preferred index options: the 6520 call and 6490 put for approximately $80 total.
The Chart Roadmap
Voz shared her screen and outlined two clear scenarios. SPY had traded inside a steep downward channel, and every touch of the upper or lower boundary delivered a tradeable reaction. She identified the pattern as a textbook bear channel, with fierce rallies, which she called "Jameson jumps" (her version of a dead cat bounce, named after her cat).
Scenario one: SPY rallies to the 200-period moving average near 662, forming a bear flag, then rolls over hard. She assigned this roughly 80% probability.
Scenario two: strong economic data from ADP and nonfarm payrolls pairs with bullish Iran developments, and the rally breaks the channel to the upside. She gave that 20% odds.
Voz also flagged the MACD (a momentum indicator that tracks whether a stock is gaining or losing steam) curling higher. The last time MACD curled in this channel, SPY broke out briefly, retested the 200-day, and then MACD swerved back down before a sharp selloff. She cautioned that the market had not yet reached capitulation and that it typically arrives near a weekend at the upper boundary of the channel.
Andrew added historical context, comparing the moment to 2008 when Congress announced TARP (the bank bailout program). Futures went limit up on the announcement, collapsed when the first vote failed, then surged again when Congress passed it the next day. His point: if a formal Iran deal materializes, SPY could reach 665 in a blink.
Mark summarized the game plan. The strangle captured both outcomes: if the rally had legs, the call paid off and the put became a free hedge.
If the news reversed, the put would catch the fall. In a market moving 100-plus points per day, paying $8.50 for exposure to both directions looked like a steal.
The team will reconvene tomorrow at 10:00 a.m. ET on State of the Market.
-The Option Pit Team