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Don here...
I spent 20 minutes this morning talking about volatility.
By afternoon, everyone understood exactly why.
Trump announced export restrictions to China. The VIX jumped to 21. The S&P opened at 6741 and sold off 89 points to 6652.
The pressure I was warning about finally released.
This morning, I was staring at volatility futures telling people something was wrong.
The VIX sat at 20. Markets were at all-time highs. The S&P had barely moved for two days straight.
See the problem?
A 20 VIX implies a $40 expected move. When volatility says the market should be rocking and the market sits still, pressure builds. That pressure released this afternoon with force.
In today's free session replay, you'll discover:
- Why the exact volatility configuration this morning predicted this afternoon's 89-point selloff. I walked through 15 years of VIX history during the session. We spend the majority of time below 20. Getting a 20 VIX reading typically comes with big price swings. Selloffs. Uncertainty. Not calm trading at record highs. When volatility and price action disconnect this severely, something eventually gives. The Trump export news was the catalyst. But the structure was loaded before any headline hit.
- The gold market move that proved options now drive everything before the afternoon chaos. Gold moved $50 in 35 minutes this morning. Not because of news. Not because of dollar moves. Because GLD options traded three times normal volume. The options market literally moved the physical gold futures contract. The tail was wagging the dog. This showed how leverage completely detaches from reality right before major market moves.
- What institutional traders saw in skew readings that let them position before the selloff. Skew was at 150 this morning. That's not a number most people track. Here's what it meant. The exact same trade cost 30 to 40% more on the call side versus the put side. Institutions were paying premium prices to protect downside. They weren't doing that for fun. They saw the 89-point selloff coming before retail traders knew what hit them.
- Why my morning warnings about elevated volatility at all-time highs proved accurate by afternoon. Last week I was waking up constantly. Checking futures. Looking at overnight action every few hours. This week the overnight session showed nothing. All the action waited for the cash open. That shift told me where the real pressure was building. By afternoon, the S&P dropped from 6741 to 6652 proving the pressure was real.
- The Tesla earnings setup that could create massive movement tonight. Tesla has a $31 expected move into earnings. The tax credit ended September 30th. They were calling customers nonstop trying to get orders in before the deadline. Logic says this should be their best delivery quarter ever. The market will find out tonight whether that logic was correct.
The pattern I was watching this morning was simple but critical.
Elevated volatility at all-time highs with compressed price action creates a spring. You're loading pressure with no release.
That spring unwound this afternoon. Hard. From 6741 to 6652 in one violent move.
I spent the morning session explaining why I was uneasy trading despite markets looking calm on the surface. The volatility structure didn't match what you saw on the chart.
By afternoon, the chart caught up to what volatility was already pricing.
This wasn't about being bearish or bullish. This was about recognizing when market structure is telling you something important. This morning it was screaming that big movement was coming.
The Trump export restriction announcement gave the market permission to move. But the structure was loaded and ready before any headlines hit. The catalyst just released what volatility was already pricing in.
I've been doing this long enough to know what normal feels like. This morning wasn't normal. The numbers were wrong for the environment. By afternoon, markets corrected them with an 89-point selloff.
→ Watch today's free session to see exactly how volatility structure predicted this afternoon's 89-point selloff hours before it happened
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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