BY ANDREW GIOVINAZZI
May 21st, 2025
Yo Pit Crazies,
You’re about to see a cash collision, no doubt. Right now, the VIX curve is flattening, while Congress fumbles what should have been a sure bet. Let me explain.
Elon Musk forms D.O.G.E. to cut spending and backs Trump.
Republicans ran on cutting spending and righting the ship which won them both Houses of Congress and the White House.
Republicans then reversed course, implementing a series of scattered tax cuts without repealing any of the Biden-era spending measures they had previously opposed.
As soon as the Big Beautiful Bill reached its first bond auction, foreign buyers sat it out—and 30-year yields shot up to 5%. I was hopeful yesterday that Congress would fulfill its mandate, but the bond market didn’t wait. Investors hit the sell button.
Do you know what happened the last time rates spiked?
SPY Sold off right to this level
Traders headed for the exits when it looked like U.S. government spending was spiraling out of control. But what really took off was the VIX. Just look at the massive red candle on the SPDR S&P 500 ETF (Ticker: SPY) from December 18—it was twice the size of today’s.
1 Year SPY chart
In December 2024, the VIX spiked from 15 to 26 on that bond-driven selloff—the biggest surge in months at the time. If traders continue to abandon U.S. Treasuries, I expect an even sharper move in the VIX ahead.
1 year VIX chart
The VIX curve below completely flipped from contango to flat on Wednesday. I now expect increased volatility and larger moves in the VIX this week.
VIX curve on May 21, 2025
If Congress keeps pushing this misguided agenda, Treasuries will sink—and equities won’t be far behind. It’s a disappointing, but hardly unexpected, development. I’m planning to set up a flat-curve Cash Collision trade on Thursday—join me.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
See what's hot at option pit
CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
PFE May17 26 calls closed for a 66% win
OP MENTORING: SPY Mar22/19 510 put calendars and 520 calls for 6.4% gain
OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain