Yo Pit Crazies,

The OP Event in Chicago was a big success. Licia was knocking it out of the park grabbing great trade ideas that conference attendees, both in-person and virtual, were able to capitalize on.

If you are in this business long enough, nothing surprises you anymore.

Apple Inc (Ticker: AAPL) has no earnings growth, but that was good enough to get the stock close to 2021 highs. 

I think that might be the point – just ok is good enough when rates are 500 basis points higher than last year. 

… for tech stocks that say “AI” or “India”, that is.

One of our conference speakers, Cem Karsan, who looks at tons of historical data, said the last inflationary cycle was 14 years and generated poor broad market returns.

We are year 1 into this.

Let’s see what we got.

SPX Is Down Year On Year

I believe this year will be a snapshot of the next several years until rates or inflation get back to lower levels.

Federal spending needs to drop to lower levels, but really how the inflation picture works out the higher Federal debt is a structural issue similar to after World War II. The US Gov just fought a very expensive battle against COVID, and now the Fed has to figure out how to pay for it.

Equity prices will be sluggish as a result.

SPX 1 year chart with 180 day IVs

SPX is a bit lower, but implied vol is way lower. This suggests the market is settling into the higher rate regime, and there is less uncertainty around it. There are still blasts higher but the vol regime is now in Zone 2 instead of Zone 4.

That means there is still opportunity and most likely equities are not going to 0. It will be a stock picker’s market.

I still like Jun VIX strangles to own outright and as a hedge against equity longs.

Trading Desk

S&P 500 Mini Index (Ticker: XSP), VIX May12/May17 402.5/395/390 put fly, 18 puts closed for a 22% gain

To Your Trading Success,

AG