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Summary
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Lock in sale →The S&P 500 ended nearly unchanged after a volatile session driven by Nvidia’s earnings, shifting headlines about Iran, and swings in oil and rates. Nvidia fell about 2%, and the market’s near-term direction remains uncertain heading into a long weekend.
The note highlights potential option-related selling pressure into Friday’s weekly expiration and notes that a typical volatility decline may be limited. It also points to a split in the oil market, with front-month crude lower while later-dated contracts rose.
The S&P 500 finished the trading session little changed, rising by just 17 basis points on the day. It was another session marked by market whiplash as headlines continued to swirl around what may or may not eventually happen in Iran. That led to significant volatility in oil prices, interest rates, and, in turn, stocks.
The market initially opened lower following Nvidia’s results but rebounded on more positive headlines later in the day, which were subsequently denied. That leaves the market in an interesting position heading into a three-day weekend, with continued uncertainty surrounding what may happen between the U.S. and Iran.
Nvidia fell after reporting results, declining roughly 2% on the day. However, the bigger test likely comes Friday, given the large number of options set to expire, particularly calls at higher strike prices around $230, $240, and $250 that are now likely out of the money.
If those positions begin to see a more significant unwind ahead of Friday afternoon’s expiration, it could create additional selling pressure as the hedging flows tied to those options continue to unwind following the earnings release.
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Typically, heading into a three-day weekend can create conditions for a volatility crush. However, with Kevin Warsh’s swearing-in on Friday and the uncertainty surrounding Iran, we may not see the typical post-holiday volatility-crushing rally in equities. In fact, we could see the opposite, especially if traders grow nervous and add hedges heading into the long weekend.
One problem for the volatility-crush crowd is that the spread between realized volatility and implied volatility is already sitting in a neutral range at around 6.5. That suggests there may not be much room left for implied volatility to compress further.
While the VIX could still move lower from current levels, there likely isn’t much downside left given where the current spread sits.
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Despite all of the back-and-forth headlines today, not all parts of the oil curve actually declined on the news. What was interesting is that while the July crude oil contract fell on the day, the September, November, and December contracts were all higher by nearly 1%.
That is an interesting divergence from what is happening in the front-month contract and suggests that the pressure on oil prices further out on the curve remains skewed to the upside.
-Mike
Glossary by ChatGPT
- Call Option: A financial contract giving the holder the right to buy an asset at a specified price before expiration.
- Front-Month Contract: The nearest futures contract to expiration and typically the most actively traded.
- Hedging Flows: Trading activity conducted to offset or manage financial risk exposure.
- Implied Volatility: The market’s expectation of future price volatility derived from option prices.
- Options Expiration: The date on which an options contract becomes invalid and ceases to exist.
- Out of the Money: An option with no intrinsic value because the current market price is unfavorable relative to the strike price.
- Realized Volatility: The actual historical volatility observed in an asset’s price movements over a given period.
- Volatility Crush: A rapid decline in implied volatility, often occurring after major market events such as earnings releases.
- VIX: The CBOE Volatility Index, commonly used as a measure of expected stock market volatility.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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Mott Capital's Market Chronicles May 20, 2026 1:38 PM