BY ANDREW GIOVINAZZI
May 6th, 2025
Yo Pit Crazies,
I am going live today at 10AMET for our State of the Market session to discuss the perfect trade to deal with the upcoming rate announcement. You can add it to your calendar here. In the meantime, readers are eager to understand how stocks are performing leading up to and following the FOMC rate announcement on Wednesday, May 7th at 2 p.m.
VIX is up 2 days in a row and back to Zone 4
Real simple: traders do not believe the recent 5% rally in the SPDR S&P 500 ETF Trust (Ticker: SPY) will hold. See the chart below—after hitting a low on Friday, traders have been aggressively bidding up June and July SPY implied volatility as if it’s going out of style.
10 day SPY chart with May, Jun and Jul sigma volatility
The SPY has dropped 7 points over the past two days, but that alone doesn’t justify the VIX spiking toward 25—or even above 18. Yet, here we are. On top of that, options for next week are notably expensive, with the SPY May 16 560 straddle (both the call and the put) trading around $15. That implies a significant move is being priced in.
The Fed cannot cut because Congress won’t stop spending and D.O.G.E. cannot cut spending by itself. Traders are looking for a move below $550 SPY and if they don’t get a rate cut they will see it.
The Fed is constrained from cutting rates as long as Congress continues its elevated spending, and the D.O.G.E can’t cut spending on its own. Traders are eyeing a move below $550 on the SPY—and without a rate cut, that downside could soon materialize.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
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