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Ten weeks. |
Ten consecutive weeks without breaching the expected move. |
I have been tracking this data for almost ten years. Hand drawing it. Building scanners to measure it. |
It started back when I was employee number thirteen at thinkorswim, building the tools that let traders read what the market was already pricing. |
Most traders spend their energy trying to figure out where the market is going. I spent years learning to read what the market was already saying. |
That is a different starting point entirely, and it is why a streak like this one gets my attention. |
Here is what the expected move is and why it matters. |
Every week, the options market prices in a range. Not a guess, not an analyst forecast. A range based on real money, real contracts, real risk. That range tells you what the market collectively believes the S&P 500 will move from Monday to Friday. |
When the week closes inside that range, we call it an efficient week. When it closes outside, the move has exceeded what the market was pricing. |
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For ten straight weeks, we have closed inside the range. |
Think of it like flipping cards from a deck. If you keep flipping over twos, threes, fours, and fives, at some point you start thinking the face cards are coming. The deck gets loaded. That is what ten weeks of efficiency feels like right now. |
Does it mean we have to breach this week? No. But the probability is building. |
Now here is the important part. A breach does not mean down. The most vicious moves in markets are almost always to the upside. We could rally hard enough to crack the upper edge of the expected move just as easily as we could sell off to the lower edge. I am not going to tell you which direction it is coming from. That is not the game. |
The game is knowing the breach is likely and positioning accordingly. |
So here is exactly what I am doing. First, I am not selling weekly premium. If you have been selling call spreads or put spreads on the SPX for the last ten weeks, you probably made money. But the streak ends somewhere. |
Implied volatility is currently at twenty-two percent while the market has only been moving at a historical rate of fifteen percent. |
That gap gets closed one of two ways. |
Either implied volatility gets crushed back down, or the market makes a violent move and justifies it. Right now the IV rank is only at nineteen percent. |
That tells you the options market is not even particularly scared. That is not a green light to sell more premium. That is a yellow light. |
Second, I bought a low probability butterfly today. A wide put butterfly targeting the lower edge of the expected in the SPX. The odds of it hitting are slim. |
But with triple witching this Friday offloading a massive amount of open risk, with the Fed meeting Wednesday, and with ten weeks of built-up pressure on the expected move, a fifty cent shot at a big payoff makes sense right now. |
This is not a trade recommendation. This is me thinking out loud about how I position when the deck feels loaded. |
The point is simpler than the math. When the market has been unusually efficient for an unusually long time, something has to give. The options market over-prices the risk, nothing happens, it squeezes implied volatility back down, and then the move comes. |
Big. Fast. Often when nobody expects it. |
We are probably on the precipice of that move right now. |
I do not know which direction. Neither does the market. But I know one thing: this is not the week to sit on a pile of short premium and hope for another quiet close. |
If you want to understand how I use the expected move to make decisions on 0dte options, I am doing a live training Thursday, March 19 at 1 pm ET. |
I will walk through how to read the setup, how to size for it, and how to stop guessing about direction entirely. Save your spot here |
To your success, |
Don Kaufman |
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