European markets are off to a strong start today. The Eurostoxx and Germany’s DAX are both up by 0.4%. France’s CAC 40 has risen by 0.5%, the UK’s FTSE is up 0.2%, Spain’s IBEX has increased by 0.7%, and Italy’s FTSE MIB is up by 0.6%. In the US, futures are trending positive as well, with S&P 500 futures up 0.5%. Investors are moving past last week’s geopolitical concerns in the Middle East. Meanwhile, gold has dropped by 0.6%, currently priced at $3,410. This morning, the performance of European equity markets shows a consistent interest in buying. Most major national indices are rising, indicating improved sentiment after last week’s focus on foreign conflicts. The rise in Eurostoxx and Germany’s DAX, while still under 1%, suggests a cautious return of investor confidence in stable or undervalued sectors. Gains in France, Spain, Italy, and the UK vary in size but are broad-based and might be driven by early earnings optimism, particularly among industrials and banks. In the US, futures reflect a similar trend. The S&P 500 is 0.5% above Friday’s close. Traders appear ready to shift their focus away from last week’s tensions, which had caused a temporary move towards safer assets. Gold’s 0.6% decline to $3,410 supports this trend, indicating less need for defensive positions in the market. We’re approaching this shift with caution. While risk appetite is improving, it’s not skyrocketing. This could lead to tighter option volatility spreads soon, as demand for protective puts slows down. Sellers of downside protection seem to be re-entering the market, possibly viewing recent tail risks as overpriced after last week’s events. There’s value in using the current upward momentum in equities to adjust spreads or set up straddles. This is especially true in sectors that widened significantly during risk-off trading but are now aligning with positive cash flow trends. We’re also observing a decrease in implied volatility, especially in European tech and US discretionary sectors. This could provide short gamma opportunities, though precise placement is crucial. The positive outlook for equities hasn’t yet translated into fixed income or rates, leaving correlation models somewhat unstable. This makes currency-hedged trades more vulnerable. We’re closely monitoring strike prices in FX-denominated options, especially where central bank differences could affect results unexpectedly. As index futures continue to rise on both daily and hourly charts, reviewing short-term momentum indicators has helped spot pricing errors in delta-neutral strategies. There’s potential for small scalping opportunities in index and sector ETFs without greatly increasing tail exposure. Given the lower realized volatility in recent days, there’s a time-value advantage in focusing on premium collection—at least until macro factors come back into play. Even though short-term sentiment feels more stable, we aren’t committing to a strong directional bias. Our goal is to adjust trades to reflect less tail risk. This includes focusing on flattening calendars where earlier dates still carry anxiety premium and possibly widening call spreads anticipating positive market movement. While these scenarios are limited in probability, current pricing may not reflect this evenly. We should also note the current discrepancy between index implied volatility and single stock volatility. The difference remains significant, particularly in US tech, making iron condor strategies attractively priced if managed on an intraday basis. Observing how liquidity develops at market open in both Europe and the US will help us determine the best way to adjust futures hedges, particularly when managing delta in multi-leg structures. Overall, products linked to equities are trading as if the markets have absorbed recent macro shocks and are refocusing on earnings and guidance narratives. This adds new context to existing holdings while creating opportunities in skew-sensitive products. Timing is critical—momentum can shift rapidly if news picks up again. However, current conditions support selectively re-engaging where implied values do not align with actual outcomes.

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