CPI data suggests the bull market is back, but the options market says hold the champagne

Yesterday's US CPI data came as a relief to the entire risk asset market.

The US June CPI annual rate came in at 3.5%, not only below the market consensus expectation of 3.8%, but also significantly lower than the previous month's 4.2%. This more-than-expected cooling almost instantly reversed the tightening panic that had been hanging over the market. Traders quickly lowered their pricing for a Fed rate hike this year, the US dollar weakened, and both US stocks and cryptocurrencies rallied simultaneously.

By the close, the Nasdaq index was up about 0.9%, Bitcoin **recovered from around $62,000 to near $65,000**, and US-listed SK Hynix staged what could only be described as a crazy "comeback" – surging 27% in a single day, sweeping away the gloom of the previous two days.

A company with a market cap exceeding one trillion dollars, up 27% in a single day. This is not the trajectory of a blue-chip stock; this is the trajectory of a meme coin. The dramatic swings in market sentiment were vividly displayed on SK Hynix's candlestick chart.

While favorable data is certainly encouraging, and risk assets are likely to catch a breather in the short term, if we shift our perspective from the candlestick charts to the undercurrents in the options market, the medium to long-term risks may not have been completely eliminated by this CPI report.

I. The Fed's Stance: One Month of Data Isn't Enough, "Zero Tolerance" Position Unchanged

Shortly after the CPI data release, Fed Chair Warsh made his first public appearance at a congressional hearing. The market was all ears for every word from the new chair.

And the message he conveyed was far more austere than the CPI numbers themselves.

Warsh explicitly stated that the Fed has "zero tolerance" for persistently high inflation. He bluntly characterized inflation consistently running above the 2% target over the past five years as a "Fed failure," and emphasized that a single month's improvement in CPI data would not alter their judgment.

In other words: even a 3.5% CPI reading looks good, but it's still a long way from what the Fed itself considers "mission accomplished."

What does this mean? It means the market's "rate cut celebration" might be popping the champagne too early. The Fed's decision-making framework will not undergo a fundamental shift based on one month of cooling data. If inflation shows signs of a resurgence in the coming months, Warsh's hawkish undertones could re-emerge at any time. The 3.5% CPI gave the market a breathing window, but it is not a hall pass confirming "the Fed has pivoted."

II. Inflationary Pressures Have Not Eased

A cooling CPI number is one thing; whether the underlying drivers of inflation are truly receding is another.

First, geopolitical tensions in the Middle East are heating up again. The US-Iran conflict has recently escalated, with Trump announcing a renewed blockade of Iranian ports. Any risk involving a disruption of supply through the Strait of Hormuz or from Middle Eastern oil-producing nations could push oil prices significantly higher in a short time, subsequently feeding into global inflation expectations.

Second, crude oil prices have been elevated for some time. WTI crude is currently hovering around $80 per barrel. The transmission of oil prices to CPI has a lag effect – the full inflationary impact of current $80 oil may only gradually become apparent in the data over the next month or two. In other words, a good-looking CPI report for July doesn't guarantee that August's and September's reports will look equally good.

If geopolitical conflicts push oil prices even higher, combined with the fading of base effects, the path for inflation in the second half of the year still holds potential for reversals.

III. What is the Options Market Saying?

The CPI利好 pushed both stock and crypto prices up, but if you look at the implied volatility (IV) structure in the options market, you'll find a disturbing divergence.

SK Hynix: Near-term IV Far Exceeds Long-term IV

The implied volatility (IV) for SK Hynix's current options has soared to around 181% – an extremely high, almost crazy number, typically seen only in highly speculative small-cap stocks or on the eve of major events.

More critical is the term structure: the IV for near-term options is significantly higher than for long-term options. The specific data is as follows:

What does this "higher near-term, lower long-term" term structure imply?

It implies that the options market is using real money to price in a judgment: SK Hynix is highly likely to experience a sharp price swing in the short term (days to a week or two) due to potential news shocks. However, in the medium to long term, there's a perceived lack of driving force to sustain a further price increase.

The elevated near-term IV reflects "event risk" – it could be earnings reports, macroeconomic data, or geopolitical surprises. The decline in long-end IV suggests that options traders view these shocks as short-term and non-trending. Looking at the medium to long term, the upward momentum for SK Hynix's stock price appears to be lacking.

Bitcoin Options: The Same Playbook

Bitcoin's options structure presents an almost identical pattern.

Despite the CPI利好 pushing BTC's price from $62,000 to $65,000, the options market reaction has been quite restrained:

• Near-term Options IV: Slightly increased to about 35%
• Long-term Options IV: Remains stable at 32%-33%, showing virtually no improvement

What does this mean? It means options traders believe BTC's upside in the short term is catalyzed by the CPI data, but from a medium to long-term perspective, the market does not believe Bitcoin possesses the momentum for sustained, significant breakouts. The sluggishness of long-term IV reflects a judgment that there is a lack of a strong directional trend in the medium term.

IV. Final Thoughts: Short-term Relief, Medium/Long-term Vigilance

In summary, the 3.5% CPI data has indeed provided an outlet for the tense market sentiment. In the short term, US stocks and cryptocurrencies are likely to enjoy a relatively calm window period thanks to this data.

However, from a medium to long-term perspective, several key variables remain unresolved:

• The Fed's "zero tolerance" stance hasn't changed; one month of data isn't enough to make it relent.
• Geopolitical conflicts and high oil prices remain potential catalysts for a resurgence of inflation.
• The term structure in the options market indicates high near-term volatility risk but insufficient medium to long-term upward drive.

It's okay to breathe easy in the short term, but the medium to long-term risks have not truly been resolved.

For investors looking to position themselves in the current environment, the BIT broker platform offers a toolbox for two-way operations:

• Margin Long: If you believe the CPI cooling trend will continue and risk assets have room to recover – BIT offers same-day 0% interest financing, with 0% interest on overnight positions within a $20,000 limit.
• Short Selling: If you believe market sentiment is overly optimistic and the rebound in chip stocks and cryptocurrencies is unsustainable – BIT's short-selling feature is offering limited-time $0 fees (until July 31st), allowing you to explore bearish directions at a low cost.

While the CPI data provides a short-term breather, don't forget to leave yourself an exit for medium to long-term uncertainties.

Disclaimer: This article was written by an external author and reflects the personal views of the author only. It does not represent the official position of BIT. BIT has not independently verified the data or analysis provided herein. This content does not constitute investment advice or a solicitation. Margin trading involves leverage and short-selling mechanisms, which can result in losses exceeding the principal and carry the risk of forced liquidation. Promotional rates are valid only during the promotional period and are subject to the terms displayed on the BIT App; they may be adjusted after the event concludes. Access to US stock investments is subject to eligibility and the regulations of the applicable jurisdiction. Past performance is not indicative of future results. Please make informed decisions after fully understanding the risks involved.