Option positions are not the most significant risk for equity markets; a pullback in US consumer spending is probably the most significant risk for the S&P 500.
With services making up around two-thirds of overall spending composition, the recovery in this part of the economy is essential if the US markets have any chance to finish the year on a high. However, several weeks have now passed since critical relief programs from the CARES Act expired. Congress remains deadlocked. Senate Republicans are looking to pass a bill this week without Democrats.
And with the battle for tech domination between the US and China takes on a more sinister connotation, things could still turn ugly quickly again.
Forex
A crucial part of any USD-weaker narrative is that the Fed will allow the economy to run hotter under its new policy framework. USD will bear the brunt of its dovishness relative to other central banks.
A rally in EUR/USD and CNH is also a prerequisite for broad USD weakness. Thursday's ECB meeting is an important test, as markets remain focused in the context of ECB Chief Economist Lane last week pushing back against euro strength, and Executive Board member Schnabel's more relaxed take on the currency.
Long EUR positioning makes a near-term rally vs. USD more difficult without fresh impetus (e.g., Eurozone economic impetus). That favors buying on dips to around 1.15-1.16, in my view.
Still, it's hard to envisage a round of new stimulus from the ECB (or a new framework) that could undermine EUR on a sustainable basis, so if you can buy those 1.16's post ECB, you might be looking back at year-end with some sense of nostalgic yearning when the market trading at 1.25.
Oil
Oil is getting influenced by broader risk sentiment today, which remains in a state of unease as the palatable level of central bank uncertainty is on the rise across all asset classes.
Gold
Gold struggles to find buyers as the dollar trades well ahead of a mountain of new US bond issuances this week, which could prove to be a mountain to climb for gold bulls