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Interactive Options Course
Posted July 30, 2025 at 1:02 pm
With an FOMC announcement during the trading day and earnings from Microsoft (MSFT) and Meta Platforms after the close, today offers the potential for some significant market fireworks. The question is whether the market will react to the spectacle or decide there is nothing to see and disperse.[1][i]
So far this week we’ve seen major indices trade in a relatively narrow range. This likely indicates some prudent position squaring ahead of a data deluge. After discussing volatility indices’ relative yawn yesterday morning, the minor selling that occurred yesterday afternoon was sufficient to get VIX and VIX9D to perk up a bit. Some traders seem to have taken that as a gentle reminder that markets can indeed go lower every so often.
That said, as we look at short-term S&P 500 (SPX) options ahead of the FOMC meeting, we see the now-customary modest upside bias. According to the IBKR Probability Lab, with SPX trading at 6377, we see a peak probability assigned to the 6385-6390 level for options expiring this afternoon, with an even higher peak of 6410-6415 for options expiring Friday. That’s understandable, considering the upside bias that indices have been displaying for weeks.
Source: Interactive Brokers
Source: Interactive Brokers
That said, we see some definite risk aversion in near-term options skews. Today’s expiry is quite steep, while options expiring Friday and at the regular monthly August expiration understandably display flatter skews. It’s typical for options buyers to try to minimize their premia by waiting until the last moment to hedge. The at-money daily volatility of about 1.3% is commensurate with recent post-FOMC daily moves.
Source: Interactive Brokers
Things get a bit more complicated when we look at the largest two of the roughly 50 SPX stocks that are set to report earnings today. Risk aversion and FOMO play roughly equal roles in their pricing. Note the obvious plateau in the probability distribution for MSFT options expiring Friday. There is a barely discernible peak around the $500 level, about 2% below the current stock price, but the likelihoods of an outcome anywhere between $497.50 and $527.50 are quite similar.
Source: Interactive Brokers
MSFT skew for the upcoming weekly options shows a bit of a “W” shape. A bit of a bump in near-money options disrupt what would otherwise be a generally steep skew with a trough about 10% above the current level. The 4% daily implied volatility seen in at-money options is roughly commensurate with 3.57% average of the past two years of post-earnings moves, though it is well below the last three (+7.63%, -6.18%, -6.05%, -1.08%, 1.82%, -2.69%, 3.07%, -3.76%)
Source: Interactive Brokers
Expectations for META are a bit more cautious, but still not particularly troublesome. We see a relatively symmetrical distribution, though with a pronounced peak in the $680 range, about 3% below the current $701 price.
Source: Interactive Brokers
META skew for Friday’s options also shows somewhat of a “W” shape, though less pronounced than that of MSFT. The peak is also in the at-money options, but it is notable that the strikes from about -10% lower to +20% higher have quite similar implied volatilities. The at-money daily implied volatility of 6% is above the recent modest moves of less than 5%, but reflect traders’ memories of last year’s double digit percentage moves (+4.23%, +1.55%, -4.09%, +4.82%, -10.56%, +20.32%, -3.73%, +4.4%).
Source: Interactive Brokers
This afternoon, from about 2pm EDT on, could get spicy. Much depends upon the tone of the FOMC’s statement, whether Chair Powell offers a “Goldilocks” tone at his press conference, and how MSFT and/or META earnings are greeted by investors. From a macro viewpoint, much matters whether those cross-currents offset or reinforce each other. If they offset, then the result will be relatively muted volatility. If they reinforce each other, then buckle up.
[i] The Frank Drebin reference was clearly inspired by my cautious optimism ahead of this weekend’s Naked Gun reboot.
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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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Options involve risk and are not suitable for all investors. For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by going to the following link ibkr.com/occ. Multiple leg strategies, including spreads, will incur multiple transaction costs.
The projections or other information generated by the Probability Lab tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Please note that results may vary with use of the tool over time.
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