2026-04-12 Weekly Outlook

Why was the rebound so violent this week?

In the early stages of the US-Iran conflict, hedge funds heavily shorted index ETFs for hedging, and CTAs were pushed along by price movements. In the options market, everyone has been hedging through index put options or VIX call options.

In four words, the market has been fully hedged. Due to the existence of massive hedging, the positive gamma positions that options market makers originally used to support the market were weakened, or even turned negative. In a negative gamma environment, a decline prompts market makers to sell further, which continues the decline. Without external positive catalysts, the market would be pushed even lower by this structure.

The Gamma of all purchased options (whether calls or puts) is always positive (Positive Gamma). When the entire market is buying put options, market makers, as the counterparty, are selling a large number of put options. Therefore, market makers have positive Delta and negative Gamma.

When everyone is crowded on one side of the boat, the most dangerous structure often breeds the biggest reversal. Therefore, the real risk lies in the right tail.

At the end of March, institutional passive buying inflows led to a change in the fund flows of CTAs as well.

As soon as the ceasefire news came out on April 8th, short covering was extremely fierce, even though oil prices did not drop significantly.

What determines returns next is the fundamentals of stocks. If corporate earnings can hold steady during the earnings season, then we can still expect an upward move in the second quarter.

What's the outlook from here?

The AI main theme is very likely to return, and every dip is a buying opportunity.

Continuously bullish on $Amazon(AMZN.US) ,$Micron Tech(MU.US) , $Corning(GLW.US)