Don Kaufman here.
S&P’s this morning opened up some 44 handles.
There’s a few interesting things going on, and one of them made me do something that’s probably going to make some of you lose your minds.
I put on a trade risking 60 cents to make $4 and change. XSP puts. Zero DTE. Low probability shot.
And before you start with the emails telling me I’m an idiot, let me explain something: I’m risking 60 freaking cents to be able to make $5. What the hell do I care what you think?
Here’s the thing – if I go out and do this same trade four times, I only have to be profitable once.
You pay 60 cents, you pay 60 cents, you pay 60 cents. Then you’re right on the fourth time, you make four bucks. How are you not ahead of the game?
You ARE ahead of the game.
Why I’m Taking This “Stupid” Shot
Markets hit the upper edge of the expected move this morning – exactly where we assumed we’re going. We’re there. Draw enough lines on your screen, you get there.
But here’s what’s weird: volatility is climbing. With the market up, NASDAQ up 1%, why is volatility climbing right now?
Something’s all wrong for the current environment. It just does, it looks all wrong.
So I’m taking a shot. This volatility looks wrong, and maybe we reverse, maybe we don’t, but I sure as hell think it’s worth the shot.
The Math People Don’t Want to Hear
You know what happens with strategies like this? I tread water and tread water and tread water, hit big, tread water, pull back a little bit, tread water, tread water, hit big.
That’s exactly how this week went with my butterflies. Out of three trades this week, I struck out on two. But on that third one, I made 315%. T-Mobile butterfly – saved our whole week. One trade.
If you allocated efficiently, you’re huge. Even when you sucked on two of them, the third one makes 300%. You’re golden.
What You’re Getting Wrong
The factors are this: I’m risking 60 freaking cents to make $5. What the hell do I care about direction?
I’m not here to tell you we’re gonna reverse.
There’s nothing in the tape that says we’re gonna reverse other than volatility. But you’re risking 60 cents, can make as much as $4 and 40 cents. Why wouldn’t you do that trade?
And you go, well, ’cause I could be wrong. You gotta get over yourself. Of course you’re gonna be wrong. But if you do the same trade four times, you only have to be profitable once.
The Thing I Cannot Do for You
Look, I can tell you the setup. I can tell you the risk. I can tell you the reward.
The one thing I cannot do for you is allocate. I cannot allocate you.
If you do trades where you risk a hundred dollars, then risk $500, then risk $200, then risk $600, you’re all over the place. How are you going to make money?
Your consistency in allocation is more important than your directional bias. A hundred percent more important. You can be freaking wrong, dead wrong. As long as you’re consistent with your allocation, you’re gonna be just fine.
Here’s What Actually Happened
This morning, we hit correlation. Advanced decline line raging strong. You’re as bullish as can be on the tape.
But we hit the upper edge of the expected move – that line some geek sitting in Arizona drew last Friday. Is that what you’re telling me, that this is not unexpected?
Everything in here is expected. The SPX went to exactly where it was supposed to go. Just like gold this week – moved exactly to the lower edge of the expected move to a freaking tee.
Markets are efficient when they want to be.
The Bottom Line
I took two shots like this last week. Struck out on one, hit big on the other.
The winner made 385%. One trade paid for everything else on my screen.
That’s the whole game. Lower probability shot, but one in three is a good thing.
Will this XSP trade work? I don’t know. Either I lose 60 cents or I make $4. There’s no middle ground.
But I’d rather risk 60 cents for a shot at making almost five bucks than sit here and do nothing.
The choice is yours. But like I said – I don’t care what you think about it.
To your success,
Don Kaufman
