Aug. 12th, 2025 Option Outlook

CPI on tap

Good Morning! A relatively calm day that accelerated to the downside towards the end of the day for a .2% drop.

I waited until CPI release to put this substack out because yesterday I gave my thoughts on why I thought CPI event vol was underpriced. The event vol for today is roughly in line with CPI event vol over the past few months, and with the CPI coming in mixed with core showing acceleration and headline showing a drop, what kind of post-CPI price action should we expect?

There is still very heavy vanna at 6400 that should still act as a magnet, but the support below is mostly gone.

Even on the 0-30 day expiration, the support seemed to be mostly removed over the past day.

6400 is still the default destination, but there is a higher probability of acute downside, particularly if we drop below 6300 and continue without an overvixing event. CPI didn’t come in looking like a disaster, so the default is what should play out with peeking above 6400. Anything well above 6400 (like 6425-6450 area) should be a sell the rip down to 6380 on a swing basis, and 6400 on a 0DTE basis.