BY ANDREW GIOVINAZZI
March 18, 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 16:
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.
Weekly Wrap up
I am giving myself a B+ with the S&P 500 Trust ETF (Ticker: SPY) jumping to the 580s early in the week on a big movement in the Trade War with China. I thought good news would help and was optimistic on a lower VIX regardless and we got it. I did not see $590 though but the Trade Detente with China put the ship to right.
Most of the big inflation numbers eased this week. I have to say the President’s plan is working. Whether it is cause and effect or just general relief prices are coming down and Trump is signing deals all over the place for investment in the USA. Those are positives.
Sadly, as readers of this letter know , Congress and spending is a problem and our elected leaders in the House and Senate are weak. Maybe 10 of them are worth something out of 400+ members. Moody’s downgraded the USA debt because Congress is failing in its duty to manage the affairs of state. This might be the impetus for reform. One can only hope.
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 Jun, Jul, Aug
SPY closed at a 30 day high and now even on the year. Good news all week long pushed stocks higher as traders did not want to miss the rally. Monday gave us a 3% boost and SPY is in spitting distance of 600.
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. Basically volatility collapsed Monday and never recovered.
SPX realized volatility snap on May 16, 2024
10-day realized volatility (HV10) has jumped to 17.65 on the massive 2 day rally to start the week. My guess is with the Moody’s downgrade, historically, that is bad for stocks. Interest rates should jump and that will be bad for stocks right now. The trend for realized volatility dropping will likely end on May 16th.
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.
The sigma IV indicator was back to the same place it was 1 week ago after some huge upside moves. As for now, volatility is pricing in the current Witches Brew policy mix the same as last week.
VIX Volatility Curves
Closing VIX curve, May 16, 2024
Closing VIX cash and curve, May 09 , 2025
The VIX curve changed shape again as VIX settled into a steep contango indicating lower volatility expectations in the short term. Like I said above, traders were ready for lower volatility and Moody’s dropped a quiet bomb at 4.40pm est. The curve will likely flatten or go into backwardation Monday.
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OP VIX Zone Watch
VIX ZONE 1 9-13
VIX ZONE 2 13.01 TO 17.99 ← We are here
VIX ZONE 3 18-23.99 ← We were here
VIX ZONE 4 24
VIX dropped into Zone 2 and it jiggled back and forth a bit this week. This should set up powerful moves for next week as I think a trip back to Zone 4 is not out of the question. I have a great trade set up for that already.
VIX 30 day chart with 1 min candles
VIX settled to the lowest level of the week on Friday as the China news was big and repriced volatility aggressively about ⅕ lower. I expect that all to change Monday.
The Big Call
The debt bomb Moody’s dropped historically has caused large moves in both VIX and SPY. I expect VIX to jump back over 24 and SPY to lose 3-5% this week. Congress can fix all of this and do their job but as of this post, they have not been up to the task. Maybe the warning shot over the bow by Moody’s will get their attention.
Crew members rearranging the deck chairs on the Titanic while it was sinking outperformed our current members of Congress. A good bill out of Congress will create a crazy snap back for SPY if they can get it done.
Check out my next seminar this week. When volatilities collide!
To Your Trading Success,
AG