As a Full Time Trader, This Is My Market Prep for Today -Soft CPI and a Potential Squeeze Higher

As Ive previously mentioned the skew on the SPY is a t it’s lowest levels in a while and At the same time, nearly 35% of S&P 500 members now have inverted three-month call skew, the highest share on record. Normally, out-of-the-money calls trade at lower implied volatility than near themoney options. Inverted call skew means that relationship has flipped and investors are paying a higher volatility premium for three-month upside calls. The three month is used because we want to filter out 0DTE speculation and to focus on what investors are paying to protect against the risk of missing a continued rally over a longer period. Basically the market is now hedging the risk that equities continue moving higher without them. Also, dealers may need to buy more stock as the market rises and those calls move closer to the money and that can reinforce the rally and increase the risk of an upside squeeze. https://preview.redd.it/ztsmokl9cxih1.png… **On to the Inflation Report** I think inflation is likely to come in softer than expected, with headline CPI around 0.04% MoM and core around 0.05%, against consensus of roughly 0.1% and 0.2%. Core is right on the rounding line between 0.0% and 0.1%, while I see v high chance that inflation falls YoY. So consensus looks more like the ceiling than the base case. The thing is that this is not just energy, gasoline is helping, but the potential surprise is concentrated in core again. Used-car prices are rolling over, new vehicles and other core goods are weakening, shelter continues to grind lower and there is very little acceleration across services. The World Cup is also weighing on travel and accommodation prices, while tariff refunds may be creating a disinflationary payback across import-heavy goods that the market is still largely ignoring. Yesterdays NFIB survey supports the same view. Small-business price plans fell to 27.8 from 31.4, while inflation as the single most important problem dropped to 14.0 from 21.1. At the same time, optimism and hiring intentions improved. That is close to Goldilocks as activity is holding up while pricing pressure is coming down. https://preview.redd.it/9gotnozacxih1.png… The chart shows the disconnect as Fed speak remains close to its most hawkish levels of the cycle while underlying inflation pressure is moving lower. https://preview.redd.it/btonjhrbcxih1.png… A zero-handle core print, just after the weak payrolls report, would make the remaining hiking bias increasingly difficult to sustain. Im not saying the Fed suddenly turns dovish, but the front end would likely have to start repricing away from further hikes and also lower inflation would also be consistent with Treasury’s increased focus on short-term issuance. . On top of this, Trump is considering a capital gains tax cut ahead of the midterms, while both asset managers and leveraged funds are sitting near the bottom of their one year Nasdaq positioning range. If inflation comes in softer, there is plenty of room for positioning to add fuel to the upside. https://preview.redd.it/g51ncwldcxih1.png… For the Qs the first resistance is between 720 and 725 and once overcome it will help momentum increase for a test of $735 and while above $712 market makers will be buying dips. Options volumes are fairly neutral with $700 being the likely minimum if the CPI comes out hot. https://preview.redd.it/aiogiphfcxih1.png… SPY positioning going into the CPI is bullish with the main resistance being $775, likely min if CPI comes in hot is $750 https://preview.redd.it/l99lm0bgcxih1.png… On the VIX positioning and exposure is deeply negative, there are however some tail risk hedges being built on the $35 mark but that's nothing unusual https://preview.redd.it/rhgsbv7hcxih1.png… I will be trimming some of the DRAM and Qs positions prior to the print as it’s generally a good risk management practice.