Yo Pit Crazies,

If my Option Volatility Jargon is vexing, check our Glossary here.

AG’s alter-ego Vol Man here with my weekly analysis. As usual, I start with my last forecast.

Last Week’s Big call for Dec 12

“SPY likely sees 695 as FOMC cuts rates. I think we buy the rumor and sell the news activity, but after a brief profit-taking move to 680 or lower, stocks resume their march to 700 by Christmas. VIX should turn in a 14 handle by the end of the week after a brief trip to 17.”

Weekly Wrap up

My forecast was great. 

SPY made an all-time high for a bit but not quite to 695. 

VIX touched the 14 handle for a brief moment on Thursday and Friday. 

Then the sadness set in.

The US Congress dropped the goose egg on the taxpayers. They said they’re not extending the COVID subsidies, which is testy, but then they said they’re doing nothing to address the cost of insurance that has ballooned since the ACA passed 15 years ago. Congress makes things more expensive for Americans and somehow gets a pass. Stocks did not like that. The one silver lining: Congress is not spending more as of today.

The second part of the market drop into the end of the week is Big Tech spending fatigue. It’s not that the spending is over but that the company valuations are so huge. Broadcom (AVGO) is another one trillion dollar chip company. For 50 years there have been chip boom and bust cycles, and I think the market has forgotten that. Anyway, some fatigue set in on earnings.

Finally, the FOMC went to 11 on the volume meter. Cut rates, sure. Jump into Quantitative Easing (QE) with the economy growing. This generation of Fed Governors should be retitled The Enablers. They’re only giving a tacit pass to the insane and reckless COVID spending levels. Stocks ultimately sold off.

Now I say those negatives, but the big positive is corporate earnings power. It’s still increasing for now, and I fear the only body to mess that up is the US Congress. That’s what to watch for 2026.

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SPY daily price action over the last 30 days with one-day candles

SPY Sigma (volatility per term) for Dec, Jan, Feb

Stocks reached an all-time high this week. Also note that most of the upside action was muted until the FOMC came out. After that, not so much goodness. Are we at the top of the Tech cycle right now? It does appear that way, and the Fed can’t do much more to help.

SIGMA volatility made a four-week low again, and any selloff has no legs. The market is moving to a new cycle in January as traders look at the new shutdown threats. The Feb cycle will not die.

SPX realized volatility snap on Dec 12 2025

Here’s what realized volatility means: It measures how much a stock actually moved over a specific time period. 

Think of it like checking your car’s odometer after a road trip. The odometer tells you how far you actually traveled, not how far you planned to go. High realized volatility means big price swings. 

When SPY has high realized volatility, the market is unstable and prone to sharp drops.

I was happy to close some SPY put spreads in Weekly Profit Cycles this Friday for even because that’s all I can get for them. 

I still made a profit on the position, but making money being short SPY is a tough game still. 

Realized volatility is in the basement, and that’s still a bullish market signal.

VIX Volatility Curves

Closing VIX curve, Dec 05, 2025

Closing VIX cash and curve, Dec 12, 2025

The VIX curve is in a very steep contango. That means short-term volatilities are very low. 

Here’s what that means: Contango is like water running downhill. 

VIX futures naturally want to flow toward the lower cash price over time. When the curve is in contango, traders expect calmer markets ahead and options volatility decays in your favor.

Even with the Friday volatility bounce, the VIX and the VIX curve ended up lower for the week. The FOMC is out and most of the earnings are done until the next cycle in mid-January. 

I will say, VIX could not hold a low, so that’s not the best signal into the Christmas holiday.

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OP VIX Zone Watch

VIX ZONE 1    9-13            

VIX ZONE 2    13.01-17.99     <- We started and ended here

VIX ZONE 3    18-23.99         

VIX ZONE 4    24+             

One week, one slow roll down Zone 2. Still no Zone 1, and we have realized volatility into the single digits. The Fed sows so many bad signals that traders can’t ride the wave.

VIX 30-day chart with one-minute candles

VIX was flat for the week. I hate that as a signal. VIX should be going down once a known event is done. This is not the best signal for SPY bulls.

The Big Call

I don’t like this confluence of SPY signals. VIX flat for the week and SPY down for the week is a poor signal. It wouldn’t surprise me to see SPY collapse this week to 570 or lower and VIX jump to 20+. Maybe Congress fixes the no action, but I think SPY trades like a cream puff softy until more certain news is out.

To Your Trading Success,

AG