06/15 U.S. stocks rise on supply and demand factors from options deal in U.S.-Iran deal settlement

Despite the results of economic indicators such as sluggish industrial production, the U.S. stock market started higher on the back of a sharp drop in international oil prices and falling interest rates on government bonds following the news of the U.S.-Iran deal. In particular, strong buying led by semiconductor and large technology stocks came in as hedging positions and options hedging demands, which had been built against geopolitical risks, were quickly liquidated. On the other hand, the energy sector was also characterized by differentiation by industry, with the decline in oil prices. In general, the market could see that supply and demand factors ahead of Thursday’s expiration date of futures options led the rise amid expectations of normalization of traffic in the Strait of Hormuz (Dow +0.92%, Nasdaq +3.07%, S&P 500 +1.65%, Russell 2000 +0.72%, Philadelphia Semiconductor Index +5.45%)

*Factors to Change: US-Iran Negotiations, Options Market Impact

It shows that the end-of-war and ceasefire negotiations between the U.S. and Iran have been concluded through official announcements by U.S. President Trump and the Iranian Foreign Ministry. The agreement includes the immediate reopening of the Strait of Hormuz, which the mayor noted, which is positively evaluated. President Trump announced the signing of an agreement with Iran at the U.S.-France summit held during the G7 summit in France, announcing that the Strait of Hormuz will be open without tolls and fully normalized on Friday. In addition, he noted that there is no immediate easing of sanctions on Iran, but that phased measures will begin in time for the implementation of the agreement in the future.

However, Iran has announced that it will charge fees in the name of environmental and insurance services after a temporary free passage of 60 days, which is somewhat far from the completely free navigation at the pre-conflict level. The inclusion of the term service cost in the actual agreement suggests that there was an acquiescence from the United States. As a result, the potential conflict between the two countries over the detailed interpretation of the provisions remains.

In the end, since the prolonged conflict put considerable political and economic pressure on both governments, the settlement itself was a predicted step, and the market has been taking care of it. It is estimated that Iran also faced limitations in economic uncertainty due to prolonged isolation, while real consumption contracted and approval ratings were heavy from the US perspective due to soaring gasoline prices.

Therefore, the sharp rise in the index on the day was due to the simultaneous liquidation of hedge positions (put options) accumulated in the market rather than simply the news of the conclusion of the negotiation itself. In fact, the 10-year Treasury bond yield fell only around 2bp, making it difficult to fully explain the rise by the interest rate effect alone. On the other hand, the sharp decline in the fear index (VIX) means that the premium (internal volatility) of put options has rapidly disappeared due to the resolution of geopolitical risks. As a result, it is believed that it has led to the liquidation of downward hedge positions by participants in the option market, resulting in the inflow of short covering during the day.

On top of that, the fact that futures options are about to expire on Thursday also extends the gains. Short covering and hedge-free buying have flowed into the tech and semiconductor industries as the value of put options, which had been built in response to the risk of soaring oil prices, has plummeted. In particular, the strong market-to-market performance of major AI stocks, including Nvidia, is interpreted as a structural result of overshooting stock prices as existing defensive positions are returned all at once rather than a response to new favorable factors.

Considering this, today’s market is largely due to short-term supply and demand factors that are set to expire, maximizing the upward volatility of the index. Therefore, after Wednesday’s FOMC meeting and Thursday’s expiration of futures options, we are paying attention to the possibility that the effect of related supply and demand will be eased or returned. Considering this, the future direction of the market needs to focus on changes in actual macro and performance indicators such as stabilization of oil prices, continuity of interest rate flows, and reliability of AI fundamentals, excluding supply and demand factors

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