Wall Street real money voting has no surprises! What Trump wants is Iran oil, not soybeans; the real expiration date is the November 3 midterm election; US Treasury inflation expectation at 2.31% is the biggest risk; RMB overvalued by over 10%; secondary sanctions will first hit Hong Kong! US stock rise is only institutional flight
This episode analyzes the pricing logic of the Wall Street options market on the eve of the high‑level US‑China meeting, pointing out that the market is betting on no major surprises. The analysis argues that Trump’s current core demand is not soybeans or aircraft, but to have the CCP cooperate with the United States on the Iran oil issue; at the same time, the U.S. Congress Graham Act, the huge deviation in U.S. Treasury inflation expectations, the severe overvaluation of the RMB central parity, and the secondary‑sanction risk facing Hong Kong constitute the most dangerous flashpoints in today’s financial markets, and it warns investors that the rise in U.S. stocks is merely an opportunity for institutional flight.
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Official Wu honestly rejects fragmented cognition. Tomorrow, which is September 24 China time, the idiot Xi Jinping is going to Washington. Old Trump’s fanfare is also stuck at the 2015 level. Hey, I see old Trump is currently organizing these American ceremonial troops to do marching‑in‑step training, and the damn training scene is super funny. I found a clip to show you. Look, what kind of activity is this? All flag‑waving, marching‑in‑step—just show‑off stuff. When you see the scene you immediately understand one thing: the underlying system of a democratic country clearly doesn’t match marching‑in‑step, standing at attention, that kind of thing. The stupid CCP‑installed operating system is all about “not afraid of hardship, not afraid of death, as long as you don’t die, train to death”—that’s the whole script. The United States is founded on pragmatism; I guess the American ceremonial troops present are thinking, “What practical meaning does this stupid thing have?” The on‑site training is still quite interesting. Okay, today we’ll talk about it.
When these two meet, how might they stir the capital markets? First, look at market pricing. The first options expiration after the meeting is September 25, and the implied volatility range set for those two days is about plus or minus 1.34%. Look at the market makers’ positions: the gamma flip point is at 7,600—yeah, that’s the S&P 500. JPMorgan’s quarterly hedge desk’s sold call strike is also around 7,800‑9xx. You can taste it; I never listen to what these investment banks say because they spew a lot of nonsense. We only watch where their money flows. JPMorgan’s options trade fits the entire price range of the meeting like a glove, right where it nests inside the market makers’ positive‑gamma box. In other words, Wall Street has already cast its vote with real money, and the ballot reads four characters: no surprise, no volatility. Today we’ll talk about something fun: how the market is handling this event.
How was the pricing for the meeting determined? When we previewed the previous Trump summit, we also said that this meeting was not about signing any agreement; it was mainly about discussing the tariff that would automatically resume on October 10th. Of course, this part is the CCP's demand, and the CCP does have leverage. The CCP's pause on drug control and the retaliatory tariffs on Yunnan's 24% also expire on October 10th. A few weeks have passed, and my assessment hasn't changed, but one condition has: the U.S. economic environment. In August, the U.S. CPI rose year‑over‑year by 3.4%, and July's PCE rose year‑over‑year by 3.7%. On September 16th the Fed raised rates by 25 basis points, to a range of 3.75%‑4%, the first hike since July 2023. Of the 18 members of the dot‑plot, 16 think another hike is needed this year. U.S. retail diesel prices have reached $6.50 per gallon, accompanied by severe consumer weakness; the University of Michigan consumer sentiment index fell to 47.8 in early September, breaking the June 2022 low of 50, and the 30‑year Treasury yield is hovering around 5.3%, the highest since 2007. With these numbers together, the biggest headache for Trump is clear. His biggest concerns now are oil prices, long‑term bonds, and the upcoming mid‑term elections in a few days; the CCP still can't fit those short‑term items into its schedule. What does Trump most want from the CCP? Iran. On September 21st, Bessonnet said on CNBC that the CCP's financial regulators are already in contact with the U.S. regarding the implementation of Iran sanctions on aviation, shipping, cryptocurrency, and gold. I don't really trust that. Bessonnet is quick to speak, but let's unpack what he meant: the U.S. is pushing a real escalation, not on soybeans or Boeing planes, but on getting the CCP to cooperate with the U.S. in choking Iran's oil. Looking at the CCP's behavior in buying Iranian oil, ship‑tracking data from Cap estimates that China now purchases about 90% of Iranian crude, with daily estimates precise to the day. In August, the CCP imported roughly 534,000 barrels of Iranian crude per day; in July it was about 823,000 barrels per day. In other words, the U.S. maritime blockade has narrowed that pipe—not cut it off, but at least throttled it. Trump has already factored in buying soybeans and Boeing into his expectations, and cooperating with the U.S. to choke Iran is now his top priority. However, I doubt the CCP can deliver. The U.S.–China meeting and the U.S.–Iran negotiations share the same pricing issue, but almost no one on Wall Street calculated it before the meeting. Oh, and one more thing.
On September 18th, six days before the meeting, Trump signed the Graham Act, which authorizes up to a 100% tariff on goods purchased by the top five buyers of Russian oil and gas. Where does the CCP rank? First. This was Trump's move to add bargaining chips. Although the Supreme Court struck down the International Emergency Economic Powers Act tariffs on February 20th, effectively removing Trump's overnight tariff tool, Congress has now handed the knife back, now engraved with Russian oil instead of Iranian oil. I think this knife will not be drawn on September 24th, but it is undeniably a long‑delay‑triggered economic bomb.
Now let's look at Xi Jinping, because his accounting is simpler. There's only one ledger left: China's current economic data. I won't spend much time listing the numbers. As mentioned before, it's worth emphasizing that China's economy is entirely investment‑driven, and commercial banks' net interest margin in Q2 fell to just 1.25%, while the industry's self‑regulation warning line is 1.8%, a gap of 55 basis points. Consequently, the loan prime rate has been flat for sixteen consecutive months.
Let me emphasize again: the Chinese Communist Party (CCP) central bank isn’t unwilling to cut rates; the banks simply can’t afford the interest spread, so the credit leg is essentially dead. China is an economy built on credit, and with credit gone, both consumption and investment have stalled. The only engine left is exports. In August, exports were reported to have risen 25% year‑on‑year, with exports to the United States up 34.4% year‑on‑year, and a monthly trade surplus of $119.1 billion. Although that figure is somewhat inflated—yesterday we calculated the real export growth to be only about 3% to 4%—China’s exports are still alive. Why did exports to the United States surge so sharply? It’s because the Supreme Court’s decision on February 20 knocked down the effective tariffs the U.S. imposed on China. That had nothing to do with negotiations. But Trump didn’t just sit and wait; through affiliate rules, the Graham Act, and secondary sanctions, he managed to pull back a lot.
The tactics used were extreme, but at least they pulled back a lot. And Xi Jinping, the idiot, must hold the Fifth Plenum of the Central Committee from October 26 to 29, a date set by the Politburo on September 1. Right before this “Emperor You Xi” trip, they also announced Zhang Youxia and Liu Runli, which we’ll discuss separately later. So what Xi Jinping wants to buy is very clear: before the Fifth Plenum, nothing should go wrong abroad, and a one‑million‑dollar ledger will tell you the nature of this meeting. What does the United States give? The U.S. offers clauses that automatically revoke themselves. What does the Chinese Communist Party (CCP) give? It offers case‑by‑case approvals, like rare‑earth permits—you can get them fast if you want, or slow if you prefer. Thus, the items exchanged by both sides share a characteristic: they can be reclaimed at zero cost. Under this structure there is no cooperative solution; it can only rely on an extremely fragile equilibrium that depends on future face‑to‑face talks. After this meeting, the two can still meet twice this year: the A‑row meeting in Shenzhen on October 18 and the G‑R‑10 meeting in Miami on December 14.
Therefore, the real expiration date isn’t any term written in the agreement; it’s the mid‑term election on October 3. Once the election passes, regardless of outcome, Trump’s sensitivity to market turbulence will immediately drop, and the cost for him to tear anything up will also change. Now, moving to today’s core part: how will the market price such a meeting? The market‑maker gamma mechanism has already been detailed in the two earlier market‑maker sections; here we’ll just summarize in one sentence. The mechanism is: wherever clients are net buying options, market makers are negative gamma. In short, the price moves one way, market makers are forced to chase it—selling when it falls, buying when it rises. This amplifies market volatility; the opposite occurs where market makers are net long options, i.e., positive gamma—they sell when it rises and buy when it falls, smoothing volatility. After aggregating the whole market, the price level where positive and negative gamma meet is the gamma reversal point. We have already built an algorithm; this website, called “Awesome Trader,” which I named, can query gamma status in real time and is currently free. What I want to say is that when the September 18 quarterly options expire, about $7 trillion of nominal principal will mature, and market makers will lose roughly 40% of their positions. The current structure, taking the S&P 500 as an example, places the gamma reversal point at 7,600 points, with the range from 7,600 to 7,890 points being a positive‑gamma zone where market makers compress volatility. The 7,890 level corresponds to JPMorgan’s hedged sold call options, and the closer market makers’ long positions get to that 7,890 sell point, the more they will sell.
It’s like putting a lid on the market, and from 7,600 down to 7,090 is a negative‑gamma acceleration zone, so what is the 7,090 point? It’s where JPMorgan bought that put option. The market maker there is short; the closer to the sell side, the more they sell. I’ve drawn it on the chart for everyone. Now we bring the “Huiwu” (exchange‑rate) into the chart: the September 25‑expiring options have an implied range of 7,661 to 7,869. The distance from the lower edge at 7,600, the reversal point, is 0.8 % of the range, and there isn’t much room left above at 7,889. The market’s pricing of the “Huiwu” result is currently converging within this box. If the result falls inside the box—i.e., nothing too crazy happens—then after the event the implied volatility will retreat, market makers will close out and hedge their positions, pushing the index toward 7,889, likely hitting that upper resistance. If the result lands outside the box and there’s still no extension announcement, or if there’s a major abnormal reaction from venture capitalists to Taiwan‑related remarks, the implied volatility will move in the same direction as the spot. Same‑direction movement means that when the price breaks up, short covering will accelerate the upward push. If it breaks down below 7,600, the market will shift into a falling negative‑gamma state. Market makers will then sell futures to hedge, creating a downward feedback loop. The lower bound of the zone is 7,300‑7,350. If that isn’t defended, we’ll look at the 7,090 area, which is a dense strike level for expiring puts. Both spots have algorithmic stop‑loss orders densely placed. The Nasdaq side is clearly more one‑sided. Yesterday the Nasdaq index clearly started to rise in the “air,” matching our earlier judgment. Shorting the Nasdaq during the week‑long rate‑hike was extremely crowded, and the Nasdaq behaved differently from the S&P 500. QQQ is the Nasdaq‑100 ETF.
How much momentum has passed through? It pierced the 725 point “call wall,” and a large amount of longs bought call options net in the 725‑740 range. What’s the market‑maker’s state here? They are short‑call gamma. In this state, the higher the price rises, the more they have to buy back, which explains the steep slope of yesterday’s big bullish candle. If the structure were reversed—i.e., the price fell back below 725—the market makers would have to sell the futures they bought back, and there would be no positive leverage left to take over. Nvidia accounts for about 8 % of the S&P 500 weight, and the seven‑big‑tech plus one more make up roughly 34 %. Chips are also a conference topic, though I don’t think there’s much fun to be had there. That part is already reflected in market prices. What I want to say is that the Nasdaq‑100’s elasticity for this meeting is higher than the S&P 500’s, but oddly the Nasdaq‑100’s implied volatility sits near a one‑year low compared with the S&P 500.
After the stocks, let’s turn to crude oil, because oil prices directly affect the U.S. and China. The chart now shows an extremely rare backwardation. Look: the September 21 Brent crude November near‑month contract is $100.138, the December contract fell to $97.26, and by the end of 2027 it will be only $79.16. What does this term structure indicate? Buying oil for next month is actually more than a month later by over $4. This is called a “first‑month spread.” Normally, farther‑out contracts are pricier, but now it’s reversed, showing the market doesn’t care about the future—it simply lacks spot crude right now. Why the shortage? Because real‑world oil routes have been choked. On September 13, only eight tankers passed the Strait of Hormuz in a day, about 9 % of normal traffic. Then Saudi Arabia’s eastern pipeline was hit by Iranian drones on September 11 and 12 and was shut down.
It’s not only the United States that feels the pain from oil; the CCP also feels it. Look, the daily freight rate for super‑large oil tankers from the Middle East to China broke $1 million per day on September 14. If you spread that cost over each barrel, how much does the freight add? To reach a terrifying $26‑$30 extra per barrel, that would directly eat up one‑third to one‑quarter of the crude’s value. This week, the average retail diesel price across the United States shattered even more: $6.55 per gallon nationally, while in my area it has already topped $8. The most outrageous I’ve seen was at a “premium” gas station where diesel was $9.25—a price that’s simply absurd. Meanwhile, the oil route has pushed China’s August mining industry PPI up year‑on‑year by 17.8%. At the same time, U.S. secondary sanctions keep tightening without pause. In April, the sanctioned refinery was the Hengli Petrochemical Dalian refinery, along with nineteen tankers; on May 1, the Qingdao oil terminal was sanctioned; on the 24th of last month, ten trading companies were named; among the 430 tankers serving Iran, 87% have already been hit by sanctions, 62% will fly a false flag, and Western shipowners’ protection associations have long since withdrawn insurance for these vessels.
The most puzzling part is the bond market. What makes it so strange? Large capital is now betting that the United States’ average annual inflation over the next five years will be only 2.31%. How is that figure derived? It’s the spread between the nominal five‑year U.S. Treasury yield and the five‑year Treasury Inflation‑Protected Securities (TIPS) yield; the difference represents the market’s expectation for average annual inflation over the next five years. Yet the actual inflation the American public is experiencing now is clearly about 3.4%, right? Oil prices have already broken $100, but they’ve been knocked back, and yet they think prices will soon calm down. Why? Part of the reason is that Bessemer gave primary‑level Japanese‑owned warehouses some space, which has a short‑term effect. The biggest reason is that the pricing logic is a wholesale copy of the U.S. Energy Information Administration’s most optimistic assumption. What is that assumption? It assumes the Hormuz Strait will reopen to navigation within two quarters and also assumes oil prices will fall back to an average of the low‑70s in the year after next. That is currently the biggest risk in the financial markets. If the oil route gets blocked for a few more months, that wishful dream will be instantly shattered, and borrowing costs and interest rates will immediately surge again. I’m not saying the pricing is wrong; I’m saying it’s overly optimistic.
The final point, which I most want to make, is about the renminbi. On September 21 the CNY’s central parity was 6.7487, while a Reuters model calculated the market should be at 6.6951, meaning the parity was 536 points weaker than the model—a weakening that has persisted for nine consecutive days. Yet after nine days of weakening, it’s still that far below the market rate. The on‑shore base rate on September 18 closed at 6.6955, the strongest since June 30 2022. Since the start of the year it has appreciated 4.45%. At the same time, the U.S. ten‑year Treasury yield is already at 5%, while China’s ten‑year Treasury yield is only 1.67%, a spread of over 330 basis points—the widest historical spread. What does that spread tell us? Money should be flowing out, the renminbi should be falling. Yet the base exchange rate is rising. The only explanation is that the CCP itself is absorbing dollars. Look, foreign‑exchange reserves grew by $19.5 billion in August, gold holdings have increased for twenty‑two consecutive months, and the on‑shore base’s daily average turnover in August was $312 billion, a full 26% lower than July.
Everyone sees this pattern, right? Quantity shrinks, price rises—what rhythm is this? What kind of administrative control rhythm is this? This isn’t a market bullish surge. I specifically checked the swap points and the interbank lending rate, and using the one‑year forward points, which are roughly negative 1,856 points, I back‑calculated the one‑year RMB interest rate to be between 1.5% and 1.7%, which basically matches the offshore RMB one‑year borrowing rate of about 1.67% in Hong Kong. The offshore overnight rate is 0.39%, while the onshore overnight rate is 0.36%, a difference of three basis points. What does that mean? It means no one offshore is shorting the RMB; there are no short sellers to be squeezed. This appreciation round is not driven by short covering nor by leveraged long buying. What is it? It is being fed by the central parity moving 30 to 60 points per day. The CCP’s central bank announced on September 21 that on September 23 it would issue 60 billion yuan of central bank bills in Hong Kong. Issuing central bank bills means drawing liquidity from offshore RMB. You ask why the RMB exchange rate is rising? Look at these term‑adjustment agreements and you’ll understand.
If the CCP’s central bank didn’t have to prop up the central parity by 30 to 60 points daily, and if we calculate the true market clearing price of the RMB based on the historical extreme spread of 330 basis points (5% US Treasury yield versus 1.67% Chinese bond yield), the RMB would clear somewhere between 7.4 and 7.6 per dollar. It is now around 6.7. By that measure, it is over‑valued by more than ten percent. How do we know? Look at the trade surplus. The CCP constantly boasts about record trade surpluses, yet foreign‑exchange reserves are not accumulating. Moreover, the hidden cost of this scheme is extremely high. First, the CCP has placed China’s commercial banking system and Hong Kong’s banking system entirely in front of the exchange rate. Large banks borrowing dollars in the swap market incur a loss of about $150‑$170 billion in spread each year. Second, the CCP directly issues various central bank bills in Hong Kong; in the past 25 years it has issued 280 billion yuan of such bills, and today another 60 billion is due. Third, transaction volume has shrunk by 26%, meaning the exchange rate is being artificially held at a high level. In substance, export‑manufacturing profits are forced to shoulder this exchange‑rate tax. Chinese manufacturing profits are already thin, as everyone knows.
Seeing this, where is Wall Street’s biggest blind spot in its consensus? It becomes clear. First, don’t treat this meeting as the top priority for “Old Zhang” (the leader), because the real first‑order variable choking his neck has always been U.S. diesel prices and the Iran stalemate in the Middle East. Second, the market thinks that a six‑month extension means the alarm is off. But think carefully: this is not a crisis resolution; it merely pushes the risk, like a cloud, to May 2027. And don’t forget, by then the Mid‑Autumn election will already be settled, and the “foolish Western Emperor’s” Fifth Plenum will have concluded. Next year the “Western Emperor” faces a big test: the 21st Party Congress. By that time, the old “string‑theory” will have no electoral baggage left. Third, the U.S. bond market treats a 2.31% inflation expectation as reasonable, but the gap with reality is huge. Holmos’s current peer volume has collapsed to nine percent of normal levels, and even Saudi pipeline infrastructure has been hit. Fourth, the foreign‑exchange market strengthens the RMB central parity daily—what’s really happening? This appreciation round is entirely the result of administrative rhythm and intervention measures forcibly pulling the rate up.
Even harsher than these are not the ones mentioned, there is an almost universally overlooked hidden line: if the United States' secondary sanctions actually hit Chinese banks, the first front to be hammered would not be Shanghai, but Hong Kong. Currently, the Hong Kong Monetary Authority’s surplus funds have dwindled to a mere HK$540 billion, and the exchange rate is stuck at 7.83, clinging to a cliff where the weak‑side conversion guarantee is barely holding. If the shock materializes, the first to plunge will be the Hong Kong interbank borrowing rate, followed by a cascade that will eventually scorch the offshore RMB. At this point we will not discuss any specific trades; we will only look at the real market pricing logic and capital flows. Right now, the options market is playing out an extremely torn‑apart scene. You see, at the same premium, an at‑the‑money option on a low‑volatility asset can lever risk compensation by an order of magnitude. Currently the cheapest protection across the market is the offshore RMB options volatility, which has fallen to a ten‑year low; the Nasdaq’s volatility relative to the S&P 500 is also at a one‑year low, while the most expensive, over‑bought protection is the extreme defensive sentiment on the S&P 500, with the skew index soaring to 148. This may sound abstract; concretely, it ranks at the 95th percentile since 1990. So you see the extreme split: one side is numb, almost completely unprepared, while the other side is hyper‑anxious, driving new insurance premiums sky‑high.
This explains why large capital, when hedging RMB depreciation risk, can only logically use options and must avoid traditional forward contracts, because the CCP’s central bank’s sharpest weapon against short sellers is to tighten the offshore overnight interbank rate at any time—nothing else, just violently raising the base cost, using funding rates to wear short sellers out. Options, by design, lock the maximum loss into a fixed premium. Looking at pricing over time, the market now suffers from severe myopia, I can only say this: the market has over‑priced short‑term panic premiums for the day of a meeting, but when you stretch the timeline, where is the October VIX future? At 17.94; November is only at 18.64. Facing a series of heavyweight agendas and an election window, the entire term curve only adds 0.7 volatility points. This state is an over‑reaction to short‑term ripples while remaining half‑asleep to medium‑ and long‑term chain risks—a glaring term mismatch. As for inflation, the bond market firmly assumes a 2.31 % expectation, yet real inflation sits at 3.4 %, creating a gap of over 100 basis points. This is now the most disconnected link in cross‑asset pricing across the market.
If you now piece together these underlying pricing instruments, the conclusion is crystal clear. Even if risk assets keep rising, at the micro‑structure level it is merely liquidity release from short sellers covering their positions—not a buying point. On the contrary, what you are seeing is large institutions seeking exit routes. So when you see this mild uptrend, the so‑called “soft rally,” don’t chase it. Of course, if you think you have the skill to chase, go ahead, but remember the risk is relatively high—this is something everyone must keep in mind. That’s all for today’s graduation. If you support my Jia Hui channel or the Hui Ming Tang US Four‑Season Deep‑Dive program, feel free to join Good People Pass. See you in the next episode.