The SPDR S&P 500 ETF is always trending in the news & social media mentions. Volatility expectations are low and options prices are relatively cheap. We just took a nice profit on an SPY straddle or call purchase earlier this week on the 15th. Plus, we have a bullish XSP trade that is also an S&P 500 Index trade that expires today that also looks like it will have a maximum profit at the close today.

With volatility expectations this low, and the fact that the the index tends to rise when volatility is this low, we can enter a low-risk bullish trade to stay in a bullish position and see how far this current trend will go.

This MDM Graph compares the modeled expectations of current options prices (the orange line) to the actual distribution of stock prices over the last two years (the blue histogram). You can see in the chart that SPY made big moves much more frequently than the modeled options prices expect. This is great news for option buyers.

This Volatility Cone compares implied volatility expectations (the yellow dots) to historical volatilities over the past two years. Expectations at every term are close to the extremely low historical volatility. To learn more about the Volatility Cone, click here. This confirms that SPY options are very inexpensive.

The Volatility Term Structure shows that options expiring on May 28th have low implied volatility and it gives us enough time to let our profits run before the next FOMC Meeting in June. SPY options are very liquid in general. To learn more about Volatility Term Structure, click here.

We just had a nice profit on the bullish side of a neutral SPY trade on Wednesday. We have an open bullish XSP trade that looks like it will finish with a max profit today. Volatility expectations are low and we can enter another low-risk bullish position to let the trend be our friend.

Be sure to read the ODDS Online Daily Trade Idea report to get the details of our bullish trade idea for SPY.

To access Odds Online Daily, click here.

Thank you,

Don Fishback