Chaos Creates Cash
This Week in the Market
This week is going to be heavily driven by escalation in the Iran war and the resulting surge in oil prices. Tension around the Strait of Hormuz has raised concerns about global supply, pushing crude higher and forcing markets to reprice inflation and growth expectations quickly. Even without full disruption, the risk premium alone has been enough to shift macro sentiment.
At the same time, equity markets have moved lower as higher energy costs begin to weigh on the outlook. Major indices have pulled back, with growth stocks seeing added pressure as investors rotate toward safety and price in potential economic slowdown. For now, oil remains the key driver, with broader markets reacting closely to each development in the conflict.
Trading the War
Most people see a war and immediately pile into defense stocks, oil derivatives, and safe-haven assets. That approach can work if you are extremely early, but by the time the narrative becomes obvious, much of the move is already priced in.
Instead, the real edge comes from trading the reversion. Whether it's oil overshooting to the upside or equities selling off too aggressively, these moves tend to reverse as uncertainty diminishes.
The most straightforward is buying the dip on equities; the next section outlines a strategy we like.
Call Debit Spreads on Index Funds
Call debit spreads on index funds offer a simple way to gain leveraged exposure to broad market upside while keeping risk defined. By buying a call and simultaneously selling a higher strike call, you reduce upfront cost compared to owning a single call, while still capturing a meaningful portion of the move higher. This structure allows for efficient capital deployment without taking on unlimited downside.
"At the money" (ATM), call debit spreads for 2027 on SPY or QQQ can yield 70-100% if we see even a small recovery from the purchase point. We can layer these strategically to capture a significant gain.
We plan to buy these spreads when SPY is down 11% from the highs, and double down (into new ATM spreads) every extra 5% it drops.
Disclaimer: At any time, A4K Capital and its affiliates may hold positions in the assets and/or contracts discussed. The content in this newsletter is for informational and educational purposes only and should not be considered financial, investment, or legal advice. A4K Capital and its affiliates are not responsible for any financial losses or decisions made based on the information provided.
