Eleven Consecutive Weeks Inside the Expected Move. You See Calm. I See a Trap.

Eleven consecutive weeks inside the expected move. You see a calm market. I see a trap.

Here is the number that should be keeping you up at night.

The expected move is what the options market prices in as the likely weekly range for the S&P 500. 

When the index closes inside that range at the end of the week, the market priced it correctly. When it closes outside, somebody got torched.

Eleven consecutive weeks inside. That efficiency draws out premium sellers. Retail traders. AI bots. 

Every single one of them looks at eleven weeks of free money and says the same thing. Keep selling. It's a free ride.

It's a free ride until you get a three-sigma move. Three sigma means the market moves three times farther than statistically expected. 

It's rare. And when you have eleven weeks of calm drawing out maximum complacency, that is exactly when it happens.

Right now the weekly expected move on the S&P is $188. We started this week at roughly 6,500. We are up 35 points on the week with one day left. Thirty-five points on $188. That is a compressed spring. That spring has to release, and it has to release big.

I came in this morning completely undecided. That almost never happens. Down 150 today is on the table. Up 50 is on the table. There is no in between. That is what happens when the market finally decides to move after eleven weeks of going nowhere.

The VIX is the other piece of this. The VIX, or Volatility Index, measures how much uncertainty the options market is pricing into the S&P over the next 30 days. 

The higher it goes, the more fear is baked in. The long-term average is roughly 20. One standard deviation above that mean is right around 28. That is where outlier events live.

VIX is at 28 right now.

Every time we have broken meaningfully above 28 in recent history, all hell has broken loose. Every time. This week we have been flirting with that level. 

Coming up, touching it, backing off. That is not comfort. That is indecision. And indecision at VIX 28 resolves violently.

Markets do not tank from highs. They tank from oversold conditions. I have individual stocks right now that are deeply oversold. 

Microsoft has cracked its expected move to the downside three consecutive weeks. That is statistically improbable. It should bounce. But an oversold stock can get dragged even lower when everything else breaks.

That is today. Both sides on the table. No heavy positions. No chip on your shoulder.

In an environment like this, the only way I trade it is with defined risk. Zero DTE options are the tool I’ve been leaning on the most lately. 

I’ve scored a handful of overnight triple-digit winners over the past two weeks trading them. 

Not because I’m trading them any differently than I have before. But because the market conditions are perfect for these types of trades. 

If you haven’t seen how I trade them, check out this video here. 

To your success,

Don Kaufman