I just said something dumb on live TV

Every morning I draw a line.

This morning that line was $40.83 on the S&P. As I write this, we are $28 past it with two hours left in the session.

Now ask yourself: how does some guy sitting at a desk draw a line before the market opens, and the entire S&P runs straight to it, and then blows right through it?

That is the expected move. Not an indicator. The indicator.

Here is what the expected move actually is. Every morning the options market prices in the likely range of movement for the session. Not based on news or charts.

Based on what traders are actually paying for options right now.

That number is forward risk. Everything else on your screen is backward data.

Today the forward risk said $40.83. The market had other plans.

If you watched the options flow this morning, you could see exactly why. Microsoft and Amazon were being hit with call buyers in Wednesday expirations. 

Not 31-day options.

Tomorrow's expiration.

When that kind of concentrated short-duration buying floods the market at once, market makers hedge by buying the underlying. That buying creates more buying. That is how you get $70 by early afternoon with no single catalyst large enough to explain it.

So where does that leave us for the rest of today.

When you breach the expected move by this margin with two hours left, one of two things typically happens into the close. The market fades as the call buyers sell into strength and the gamma unwinds. Or it grinds sideways near the highs and closes strong, which sets up the weekly expected move as the next number worth watching.

I do not know which one it will be. Nobody does right now.

What I do know is that above the expected move is low-probability territory. The options market said $40.83 was the range. We are $28 past it.

That does not mean sell everything. It means the close matters more than anything that happened this morning. Watch it.

To your success,

Don Kaufman