To The Moon

Last time I talked with you about this week's options strategy: besides continuing to run the index options straddle into rallies, one could also consider going long U.S. Treasuries on dips — especially the price of the long-bond TLT. But on Treasuries, as of today, after the escalation of the U.S.–Iran war, everyone needs to be more careful: rising crude oil drives inflation expectations higher, which could push Treasury yields up further, and Treasury prices would then face downward pressure. So we can lift the stop-loss on the buy-the-dip Treasury view a bit higher — up to near the prior-low support around $83.5.

Review：Strong Dollar Returns: After Booking the Straddle Win,Why Treasuries Deserve Our Focus

So what short-term opportunities will the reignited U.S.–Iran war bring?

For this kind of broad-impact opportunity, where market sentiment swings a lot, I usually capture it through futures. Before getting into the futures opportunities, let me share my return curve over the past three months — honestly, it's not pretty: I made a small profit, but with large volatility. The gains all came from the options straddle, selling calls on crude oil, and selling puts on tech stocks.

$标普500(.SPX)$ $SP500指数主连 2609(ESmain)$ $微型SP500指数主连 2609(MESmain)$ $标普500波动率指数(VIX)$ $纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $NQ100指数主连 2609(NQmain)$ $道琼斯(.DJI)$ $道琼斯指数主连 2609(YMmain)$ $微型道琼斯指数主连 2609(MYMmain)$

OK, back to the current market. Undoubtedly, the escalation of the U.S.–Iran war will directly pressure high-flying U.S. stocks. But for strategy on U.S. equities, I still think the options straddle is the more suitable approach. Right now there are just two opportunities worth capturing with futures: one is crude oil, the other is the euro.

First, let's look at crude oil's price action:

On February 28 this year, the U.S.–Israel coalition first launched military strikes on Iran — that is the starting point of the crude rally you see around February on the chart. As of now, crude has already pulled back more than 30 points from its high, which happens to have swallowed up all of the oil premium built since that February 28. In other words, if the U.S.–Iran war escalates again at this point, it would be no surprise at all for prices to pulse up rapidly from here — because WTI's current price in the $60s has already priced out the war premium. So this is a relatively suitable spot for oil to erupt again.

$美国原油ETF(USO)$ $WTI原油主连 2608(CLmain)$ $微型WTI原油主连 2608(MCLmain)$ $小原油主连 2608(QMmain)$ $天然气主连 2608(NGmain)$

So we really need to be very careful. At the same time, oil's pulse-style eruptions are well suited to being captured with futures.

On the technicals, crude has formed a bottom-fractal pattern and has broken above it; the short-term bias remains up. If WTI breaks above the 20-day moving average, it will very likely accelerate higher — though this is price reasoning premised on the war continuing to escalate and both sides continuing to fight.

On the trading side, we still watch the resistance from WTI futures' 200-day and 20-day moving averages. Once it breaks above the 20-day MA, one can try the long side; if it falls back below the 20-day MA, cut the loss immediately. For taking profit, you can try setting the target at twice the risk (the stop-loss amount), because once it breaks the 20-day MA here it may keep pulsing higher with sizable upside. After a trend emerges, you can consider swing trading.

On taking profit, you can consider a tiered take-profit method: when price reaches the target, take profit on half the position; for the other half, raise the stop-loss up to the entry price, and set that half's target at twice the risk.

Once crude rallies hard, it will inevitably drive inflation expectations higher, strengthen the Dollar Index, keep U.S. stocks and Hong Kong / A-shares under pressure, and keep gold oscillating at lows for longer. All in all, besides oil's pulse, the other opportunity worth capturing with futures is the pullback in the euro — the dollar's largest counterpart:

Now let's look at the euro

Because of the rise in crude, rate-hike expectations may strengthen again, so the Dollar Index will most likely keep climbing — which makes a short position in the euro worth attempting:

For the euro, try shorting at the 20-day MA; if it breaks up through the yellow resistance at 1.15, cut the loss; the take-profit target is the euro's prior low around 1.13.

$美元指数(USDindex.FOREX)$ $做空美元指数-PowerShares(UDN)$ $加元主连 2609(CADmain)$ $欧元主连 2609(EURmain)$ $日元主连 2609(JPYmain)$ $英镑主连 2609(GBPmain)$