Yo Pit Crazies,

 

If my Option Volatility Jargon is vexing, tap 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 Feb 20

 

VIX keeps making higher lows. We saw a small break last week, but the market wants a bigger break lower as VIX continues to rally. It is what it is.

The Weekly Wrapup

VIX bounced around all week and stocks made a new recent low on Monday. We traded in the annoying higher-VIX-but-no-selloff range. Traders sat on their hands waiting for something to happen.

And something did. SCOTUS ruled the Trump Administration cannot use its emergency authority to enforce tariffs. He came ready with Plan B under another statute and kept tariffs in force. All the trade deals will likely stay.

SPDR S&P 500 ETF (SPY) mostly refused to sell off too badly but couldn't fly higher because of saber rattling in the Persian Gulf. Trump wants to push Iran to the table and the uprising in Iran is trying to push the Mullahs under the table. Nobody knows how it plays out, and VIX stays stuck at higher levels because of it.

Zero-DTE options launched for the Mag 7 and trading is off to a fast start. This week also showed most Mag 7 stocks stopped going down. Software stocks had their worst month in 10 years. Traders even came for high-flying network security stocks late Friday. The Claude killer app is alive and well.

Energy continues to rock after the EPA dumped the CO2 Endangerment clause for greenhouse gas emissions. In my view, this was the most destructive piece of regulatory overreach in 50 years. Ideas like that crippled the German industrial base and pushed energy prices to the moon. It will take some years for the USA to produce cheaper energy again. Speaking of that, the US Army is looking at deploying small nuclear reactors for power. Stay tuned for this growing story.

Mini Rant

In an odd way, both Trump and Obama tried to get around a recalcitrant Congress and both executive orders got quashed by SCOTUS decisions. Congress by design is a slow-moving body, but 80 percent of voters want Voter ID. Time for Congress to do something.

(Every Friday, The Options Insider Radio Network’s Vol Views offers bonus volatility insights with either Mark or myself, no charge!)

 

 

SPY daily price action over the last 30 days with one-day candles. SPY Sigma (volatility per term) for Feb, Mar, Apr

 

SPY got a decent range this week, but considering how high VIX was, there were zero guts to the follow-through. Stocks hold up very well considering the drivers of growth, Mag 7 and software stocks, have gone AWOL for a month or more. SPY sits 10 points below all-time highs, or 1.5 percent.

Sigma volatility closed unchanged this week after briefly jumping higher. Higher for longer for option volatility remains the rule.

 

SPX Realized Volatility snap on Feb 20, 2026

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.

SPY realized volatility is still pretty high, trading over 15 percent this week on the 10-day. Every 16 percent of volatility equals a one percent SPY move. We're seeing about one percent a day moves for SPY, but it's one day up and one day down.

VIX Volatility Curves

Closing VIX curve, Feb 13, 2025

 

Closing VIX cash and curve, Feb 20, 2026

 

The VIX curve sits in a light contango and drifted lower by the close Friday. With the tariff issue now mostly settled, a major piece of the 2025 volatility is off the table. That still leaves tech stocks and the Strait of Hormuz holding VIX up. A very healthy premium remains in option prices.

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.

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OP VIX Zone Watch

 

VIX ZONE 1 9-13

VIX ZONE 2 13.01-17.99

VIX ZONE 3 18-23.99 ← We lived here

VIX ZONE 4 24+

 

VIX started the week with a pop and drop, only to pop and drop again and finish closer to the bottom of Zone 3. The upper half of VIX with stocks so close to all-time highs is odd. 2025 had the most high-VIX, high-SPY closes in years. 2026 is right there.



VIX 30-day chart with one-minute candles

 

VIX did finally break the higher-low band this week, but just by a little. Geopolitical events are pesky things to price and the Persian Gulf is a big wild card. Most economic news is decent enough, but we need more and better news for VIX to drop.

The Big Call

If stocks aren't selling off, they're going higher. Right now that's the case. Congress could take some responsibility and see where our money and votes are going, but it appears they don't want to do that either. For stocks to go higher, we need some more positive sentiment and a reason to rally. With no Gulf War III, this is still a dip-buying market and I expect VIX to have a tight range. We could break 18 next week on no news.

 

To Your Trading Success,

Andrew