🔥 CPI & PPI Alert! |💹 My Thoughts on SPY Moves This Week & Beyond!

On the macro side, the U.S. labor market is cooling. August payrolls added only +22k jobs vs. 75k expected, while unemployment climbed to 4.3%. That’s weak enough that traders are fully pricing in a Fed rate cut this month — FedWatch puts the odds near 100%. The big question isn’t whether they cut, but whether this marks the start of a longer easing cycle.

That’s where inflation comes in, and this week we get both PPI and CPI.

📊 PPI (Wednesday) – Expected at +0.3–0.4% MoM after a hot +0.9% last month. PPI shows what businesses are paying for inputs, which often flows into consumer prices later. Traders focus on the MoM print to gauge the latest pressure. A soft print → dovish signal for the Fed.

📊 CPI (Thursday) – Headline forecast: +0.3% MoM / ~2.8–2.9% YoY. Core forecast: +0.2% MoM / 3.1% YoY. Core CPI is the key number — it tells us whether inflation is truly cooling. If Core CPI stays above 3.1%, it signals sticky inflation; if it dips toward 3.0%, the Fed has more room to cut.

Now, layer in seasonality. Historically, September is one of SPY’s weakest months: average returns around –0.71%, and only about 56% of Septembers end positive. But October–December tend to flip bullish. So the short-term bias leans cautious, while the longer-term outlook remains constructive.

To align with this view, I like using a diagonal call spread. Here’s the breakdown:

– Buy a longer-dated in-the-money call → gives me a strong delta exposure, lower theta decay, and lets me ride the bullish trend into year-end.

– Sell a shorter-dated out-of-the-money call → collects premium upfront from elevated implied volatility, while hedging against short-term sideways or bearish moves.

Think of it like a two-layer safety net: the short call gives immediate income and cushions volatility, while the long call positions me for the bigger upside once seasonality and easing trends kick in.

Pros: Allows directional exposure while earning premium from the short leg.

Cons: Upside is limited and position needs active management.

– Scenario 1: PPI and CPI are soft SPY likely pushes higher as bond yields drop and the USD weakens. ✅ Diagonal benefits as SPY rises — the long call gains value while the short call is manageable. ✅ The bullish directional move allows the whole spread to profit. During this time, I’ll monitor the position and consider closing both legs if my target is reached.

– Scenario 2: Core CPI stays sticky at 3.1%+ SPY could pull back as bond yields rise and the USD firms. ✅ The short call provides premium as a buffer during this pullback. ✅ The long call remains positioned to benefit once seasonal strength and year-end bullish trends kick in, aligning with my longer-term thesis. Here, the diagonal acts like a shock absorber, letting me weather short-term turbulence while staying positioned for the seasonal rally.

Objective: Capture October seasonal bullishness while hedging short-term CPI/PPI volatility with September Seasonality.

– Scenario 1 – CPI/PPI soft: SPY rises → long call gains, short call manageable. Consider closing both if target reached.

– Scenario 2 – Core CPI sticky: SPY dips → short call provides buffer, long call stays for seasonal rally.

– Max Profit: $602.81 → Unlimited Profit if short call expires worthless after

– Max Loss: $1452.50

– Breakeven: $651.52

Of course, this setup assumes I’m targeting only the October seasonal move. If you also want to capture November and December bullish seasonality, you could extend the long call expiration further out. The strike selection can also be adjusted depending on the delta you prefer — higher delta for more directional exposure, lower delta for a cheaper long call while still participating in upside.

If SPY moves against the trade, I’m prepared for max loss. I’ll also watch for any remaining value in the long call and may cut the position early to limit losses. Risk management is key — staying disciplined ensures I can stay in the game for future opportunities.

At this moment, this is how I see the setup — but markets can change very quickly, and sometimes price action doesn’t follow expectations. As traders, the key is to stay nimble, manage risk, minimize losses, and lock in profits when the trade moves in your favor. The diagonal call spread offers flexibility to adapt to short-term volatility while remaining positioned for the seasonal bullish trend, but constant monitoring and timely adjustments are essential.

So here are my thoughts — how about you? I’m really curious how you approach it. Long a deep ITM call? A put spread? Or something else entirely? Would love to hear your take!

Happy trading this week!