CPI data says the bull market is back, but the options market says don't pop the champagne just yet

Data from yesterday's U.S. CPI report came as a relief for the entire risk asset market.

The U.S. June CPI annual rate came in at 3.5%, not only below the market consensus of 3.8% but also significantly lower than the previous month's 4.2%. This larger-than-expected cooling almost instantly reversed the tightening panic that had previously hung over the market. Traders quickly lowered their pricing for Federal Reserve rate hikes this year, the U.S. dollar weakened, and both U.S. stocks and cryptocurrencies rose in tandem.

By the close, the Nasdaq Composite Index was up about 0.9%, and Bitcoin **recovered from around $62,000 to near $65,000**. U.S. stock SK Hynix, in particular, staged what could only be described as a crazy "comeback" – surging 27% in a single day, erasing the gloom of the previous two days.

A company with a market cap exceeding one trillion dollars surged 27% in a day. This isn't the trajectory of a blue-chip stock; it's the trajectory of a meme coin. The dramatic swings in market sentiment were perfectly captured by SK Hynix's candlestick chart.

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

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

Shortly after the CPI data was released, Fed Chair Waller made his first public appearance at congressional hearings. The market was all ears for every word from the new Chair.

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

Waller explicitly stated that the Fed has "zero tolerance" for persistently high inflation. He bluntly characterized inflation running above the 2% target for the past five years as a "Fed failure" and emphasized that the direction of their judgment wouldn't change based on a single month's improvement in CPI data.

To translate: Even though the 3.5% CPI looks good, there's still a long way to go before the Fed considers its "mission accomplished."

What does this mean? It means the market's "rate cut jubilation" might be premature, opening the champagne too early. The Fed's decision-making framework won't fundamentally pivot based on a single data point showing a cooldown. If inflation proves stubborn in subsequent months, Waller's hawkish undertones could easily resurface. The 3.5% CPI provides a window of relief for the market, but it's not a "Fed has pivoted" pass.

2. Inflationary Pressures Have Not Been Alleviated

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 the re-blockade of Iranian ports. Any risk involving supply disruptions in the Strait of Hormuz or from Middle Eastern oil producers 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 impact of current $80 oil on inflation might only gradually appear in the data over the next one to two months. In other words, a good July CPI report doesn't guarantee that August and September will look equally good.

If geopolitical conflicts push oil prices even higher, combined with the fading of base effects, there remains a possibility of inflation reaccelerating in the second half of the year.

3. What is the Options Market Saying?

The positive CPI news lifted both stock and crypto prices. However, if you look at the implied volatility structure in the options market, you'll find a troubling divergence.

SK Hynix: Near-term IV Much Higher Than Long-term IV

The implied volatility (IV) for SK Hynix's near-term options has surged to around 181% – an extreme, almost crazy number, typically seen only in highly speculative small-cap stocks or right before major events.

More critical is the term structure: the IV for near-term options is significantly higher than for longer-term options. Specific data is as follows:

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

It means the options market is using real money to price in a specific judgment: SK Hynix is highly likely to experience a significant price swing in the short term (days to a couple of weeks) due to some news impact. However, in the medium to long term, there is a lack of driving force for a sustained price increase.

The elevated near-term IV reflects "event risk" – it could be earnings reports, macroeconomic data, or sudden geopolitical changes. The decline in longer-dated IV suggests options traders believe these shocks are short-term and non-trending. In the medium to long term, the upward momentum for SK Hynix's stock price seems lacking.

Bitcoin Options: The Same Script

Bitcoin's options structure shows a nearly identical pattern.

Despite the positive CPI news pushing BTC's price from $62,000 to $65,000, the options market reaction was quite restrained:

• Near-term IV: Slightly increased to about 35%
• Long-term IV: Remains at 32%-33%, showing little improvement

What does this mean? It means options traders believe BTC's upside potential is catalyzed by the CPI data in the short term, but from a medium to long-term perspective, the market doesn't see Bitcoin having the momentum for a sustained significant breakout. The subdued long-term IV reflects a judgment that there is no strong directional conviction for the medium-term trend.

4. Final Thoughts: Short-Term Relief, Long-Term Caution

Overall, the 3.5% CPI data indeed provided an outlet for the currently tense market sentiment. In the short term, U.S. 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 change its tone.
• Geopolitical conflicts and high oil prices remain potential catalysts for renewed inflation.
• The term structure in the options market shows high near-term volatility risk but insufficient medium to long-term upward driving force.

It's okay to breathe a sigh of relief in the short term, but 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 toolkit for two-way operations:

• Margin Long: If you believe the CPI cooling trend will continue and risk assets have more room to recover – BIT offers margin trading with 0% daily interest and up to $20,000 interest-free intraday financing.
• Short Selling: If you believe market sentiment is excessively optimistic and the rebound in chip stocks and cryptocurrencies is unsustainable – BIT's short selling function is currently available at a promotional $0 fee (until July 31st), allowing you to test bearish directions at a low cost.

While CPI data provides a short-term respite, remember to leave yourself an exit for medium to long-term uncertainties.

Disclaimer: This article was written by an external author and reflects only the author's personal views. It does not represent the official position of BIT. BIT has not independently verified the data or analysis presented herein, and this article does not constitute investment advice or a solicitation. Margin trading involves leverage and short selling mechanisms, which can lead to losses exceeding the principal and carries the risk of forced liquidation. Promotional rates are only valid during the promotional period, subject to the terms displayed on the BIT App, and may be adjusted after the event concludes. Eligibility for U.S. stock investment must comply with regulations of the relevant jurisdiction. Past performance does not guarantee future results. Please make informed decisions after fully understanding the risks.