BY ANDREW GIOVINAZZI
April 24th, 2025
Yo Pit Crazies,
Is the Trade War getting worse?
Do businesses know how to adjust to President Trump?
Are corporate earnings good or bad?
Are interest rates going lower?
The answer to all of the above is “I don’t know”.
I would like to know if the Trade War is getting worse or better, but it’s hard to tell. Gold keeps going to the moon so no matter what interest rates are doing, I have some conflicting signals. Is it possible that President Trump wants to finance the Defense Budget with tariffs since the USA polices the world? Maybe.
Is that the worst thing that could happen?
An easy way to tell what the market is thinking is by looking at short term implied volatility. There are many, many volatility metrics. So depending on the question I am asking, I want to pick the right thing to watch. VIX is great for broader market sentiment but it is not really ultra sensitive.
Below is a version of the Option Pit Skew-O-Later. Hannah will change the name, but it is an easy way to get a sense of what the market thinks.
SPX Apr28 skew
Implied Volatility is not uniform across the Volatility Surface
That’s just a fancy way of saying that there’s no single volatility value for every strike price and expiration date within an option class. An option class includes all options tied to a specific underlying asset, like Apple Inc. (Ticker: AAPL) or the S&P 500 Index (SPX). In the SPX curve shown above, each point represents a specific strike price. The blue line shows the opening skew pricing, while the orange line reflects the current skew pricing. The left side of the chart—below the at-the-money level—represents put options, and the right side—above the at-the-money level—represents call options.
At first glance, the put side appears to be declining more rapidly than the call side. This suggests that, early this morning, traders were pulling back bids on SPX puts more aggressively than on calls—indicating a mildly bullish sentiment for SPX. SPX is one tweet away from a 3% selloff, but for Thursday going into Friday, the bid for Monday options, which are the most weekend news sensitive, is starting to go away. Don’t be surprised by week highs tomorrow.
If you want more volatility training, check out Mark here.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
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