With a fresh round of escalation in the Middle East and disappointing price action from the SK Hynix SDR (15% down after listing), semiconductors remain under pressure.

We’ll start with institutonal options flows into semiconductor stocks, market positioning and market-maker exposure, then move on to oil and the SPY.

SOXX is seeing bullish options positioning around $670, but mainly through longer-term contracts with a September 18 expiry. 

Shorter-term positioning suggests we could see further downside towards $550 and $500. 

Below that, positioning is very limited which indicates that $500 is likely to act as a bottom if the sell-off intensifies and SOXX moves below $550. Note that we remain bullish on semiconductors over the long term.

[SOXX options market positioning and market maker exposure](https://preview.redd.it/tmjiq36xzych1.png?width=591&format=png&auto=webp&s=3f94eeac0c6f9d9938fe78906e547561de5bf69a)

Institutional options flow remains muted to negative across SOXX and SOXL, so we have not received confirmation from those flows yet.

[SOXL Institutional Options FLows](https://preview.redd.it/8ligz1ya2zch1.png?width=892&format=png&auto=webp&s=a2108e259938d3a66b67f35ca4c572b4ad5ba7fe)

DRAM, the memory-focused ETF, is showing a similar picture with its main support sitting at $55. 

There is not much exposure below $50 and the exposure that does exist is bullish. 

Keep those levels on your charts.

[DRAM market maker exposure and market positioning](https://preview.redd.it/ua3t8ew60zch1.png?width=618&format=png&auto=webp&s=2c0ce9e30699aa71e697914d6815a932dd509336)

[DRAM options market volumes](https://preview.redd.it/yxfnkf390zch1.png?width=633&format=png&auto=webp&s=59259b8b1ac06cde26896d5cd6d47abe22e1ac38)



Moving on to the escalation in the Middle East, bullish options volumes for USO, which we use as a proxy for oil, are picking up between $110 and $120 before mostly falling off. This suggests that current expectations see $120 as the likely cap for this rally if nothing else changes.

[USO market maker exposure and options market positioning](https://preview.redd.it/g4i735fw5zch1.png?width=671&format=png&auto=webp&s=cb2e8ebbd23e0ff03c636b5ec7e6379638f86564)

We are also not seeing a major repricing of Japanese bond yields. This is an important data point because the Japanese economy is highly dependent on oil from the Middle East, which accounts for about 77% of total consumption. 

A more aggressive repricing of yields would likely occur if the market expected the escalation to cause longer-term damage.

[Japan 6m yeild](https://preview.redd.it/yqjnz3fa0zch1.png?width=1640&format=png&auto=webp&s=b406b69f45e601dfe08565fd8873ef6e993ce35a)

We can use prediction markets to get a rough idea of what is generally priced in. Current levels suggest there is no certainty that traffic will return to normal by July 31, while there is a 38% chance that traffic through the Strait of Hormuz will not return to normal by the end of the year.

https://preview.redd.it/byeijehd0zch1.png?width=904&format=png&auto=webp&s=bc64eb24fbfb791d2744b9a6017cecc73a129dd8

https://preview.redd.it/a5wm4mvd0zch1.png?width=893&format=png&auto=webp&s=46854cbc931c2488ab5f0ffcf8af1fadb34212d1

The current price action needs to be viewed in this context. When you combine these signals with broader market positioning, it becomes clear why we are not betting on a major increase in oil prices.

The SPY remains fairly balanced in terms of market positioning and market-maker exposure. Options volumes are showing a similar picture, with the main support sitting at $750.

[SPY market maker exposure and options market positioning](https://preview.redd.it/uam4mjre0zch1.png?width=660&format=png&auto=webp&s=b1685542941c37a47ca03439cb2d812289d81345)

The main driver will be earnings season, which kicks off tomorrow with a couple of the largest banks in the US. However, the main focus will be on semiconductor earnings as the sector constitutes roughly 18% of the index.

Market positioning is also showing no significant signs of concern, with 20 remaining the main resistance level. Options volumes are showing slightly higher bullish activity but nothing overly concerning given the escalation.

[VIX](https://preview.redd.it/ait3e5hf0zch1.png?width=652&format=png&auto=webp&s=7fab6e1ca82f65ce8f7e4d77ccd9d01939a4dbfb)



Markets note - SK Hynix Weakness and Middle East Escalation