BY ANDREW GIOVINAZZI
May 11th, 2025
If some of my Option Volatility Jargon is vexing, our Glossary is here.
AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…
Last Week’s Big call
Last Week ending May 09:
The U.S. continues to grapple with its debt challenges, and the FOMC is likely to weigh in soon. So far, the Fed has remained silent on the matter, which I consider a form of financial malpractice. Overall, the news is generally positive, if there’s any to be had. Earnings are solid, but guidance remains absent, and the U.S. has secured a mineral deal with Ukraine. What could possibly go wrong?
This could be the first week of subdued volatility, with SPY hovering just above 570 and the VIX staying at 21 or lower following the FOMC meeting.
Weekly Wrap up
I am giving myself a B+ with the S&P 500 Trust ETF (Ticker: SPY) tickling 570 and VIX down to the 21 handle into the close Friday. Not bad but not as much as it should be. I will explain.
Meta Inc (Ticker: META) continues to be the winner as the Trump Administration gets some kind of deal in place with the UK. Stocks picked up the pace but Alphabet Inc (Ticker: GOOGL) is losing a peg as their search came under fire. GOOGL has done just about everything possible to help their search dominance, phones, free software, Maps but AI might be undoing. Too early to tell but my guess is the spend for AI omnipotence is not going to end anytime soon. The answer is buy the Market Vectors Semiconductor ETF (Ticker: SMH) on dips.
Interest rates drifted higher once again as Republicans tried madly to enshrine all of Biden’s spending yet ignore all of the waste found by D.O.G.E. The real test was the Pentagon Budget and it is 10% higher. Not sure if the Republicans notice this but the people voted for less spending and lower inflation and Congress is busy trying to give them the opposite. The person with a job keeps losing in these budget battles.
As with last week, the bond market did not react much. The next vol event will be 5% or higher 10 year interest rates as the bond market implodes because Congress is simply too greedy and stupid to do what is necessary. What they need to do is stop entitlement and defense spending growth. This is when politics leaks into the stock market but for now, 4.35% is the 10 year rate now so the market will take no spending growth as progress which is a very low bar.
If this kind of volatility is creating headaches, here is a solution.
Every Friday, The Options Insider Radio Network’s Vol Views offers bonus volatility insights with either Mark or myself—free of charge!
SPY daily price action over the last 30 days with 1 day candles
SPY Sigma (volatility per term) for May, Jun, Jul
SPY closed near a 30 day high. Still 8% off the highs of the year but Trade Deals Matter. The test will come from China but it looks like 10% across the board tariffs will be the norm to raise revenue. The rest of the world does it, so the USA will try it to promote manufacturing here. Will it work? Who knows but mostly other countries are ok with it.
SIGMA volatility closed at its lowest level of the week and a 30 day low. Remember SIGMA volatility is just a “mini VIX” calculation for a specific term, using only 7 strikes around the money. Lower Volatility is a sign for… lower volatility. Momentum is for sure lower.
SPX realized volatility snap on May 02, 2024
10-day realized volatility (HV10) has dropped sharply to 10.81% which is cut in half from last week, marking the 4th consecutive week of dropping volatility. 10% dang that is low and the normal realized vol for a longer term bull market. I could not believe that number when I read it. Essentially, we don’t hold a selloff in SPY anymore.
It’s hard for VIX to take off again if realized volatility keeps decreasing. Meanwhile, the 60-day realized volatility remains elevated at 33%, but the market is now discounting that severely.
If all this volatility has you feeling nutty, consider a strategy that’s directionally neutral and doesn’t rely on which way the market moves.
VIX Volatility Curves
Closing VIX curve, May 02, 2024
Closing VIX cash and curve, May 09 , 2025
The VIX curve changed shape again as VIX settled under some futures for the first time in 30 days. This is the first taste of contango and a decent shot and getting deep into Zone 3 since March, 10 day realized volatility is a magnet that will pull VIX toward it slowly and that number is in the 10s.
You can check out Volatility 101 basics on our Option Pit YouTube channel – now streaming.
OP VIX Zone Watch
VIX ZONE 1 9-13
VIX ZONE 2 13.01 TO 17.99
VIX ZONE 3 18-23.99 ← We are here
VIX ZONE 4 24 ← We were here
VIX dropped into Zone 3 from 4 and stayed until the close Friday. VIX had only a small reaction to the FOMC as JPow will not lower rates until Congress does what it is supposed to do. That is my opinion and I am sticking to it.
VIX 30 day chart with 1 min candles
VIX peaked midweek and trended lower through the rest of the week, returning to 30 day lows. Most of that was China noise. Right now traders have to walk volatility down and pretend the Trade Wars are over to get back to the teens for VIX. A couple of more deals or a China Detente and it could happen.
The Big Call
Big earnings are done and guidance is 0. Nvidia Corp (Ticker: NVDA) is coming out
Realized volatility has dropped down to 10%. That is Bigly for Vol Traders. What that means is
Traders are not hitting the sell button on every news item and continuing to sell like the end is near. The market has some level of Trade War acceptance but it is far from over. I am optimistic we will see VIX trade the 20 handle this week. Without great news, we are lucky to get SPY to trade over 575.
Check out my next seminar this week. When volatilities collide!
To Your Success,
AG aka “Vol Man”
Andrew Giovinazzi
30-Year Trading Pro
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