The market just used up a full week of room in a single morning.
Here is what most people missed in the noise. The options market priced the S&P to move about 137 points for the entire week. By Monday afternoon, we had blown clean through it. The whole week’s worth of expected movement, gone on day one.
That one fact tells you more than any headline does. When you have already traveled the full distance the market expected you to cover all week, your risk-reward gets wildly skewed, and a lot of people do not get that.
Think about where that leaves you. To the upside, you have maybe a few points of room left before you are stretching past the edge of the expected move.
To the downside, that is a big question mark, and it is a lot bigger than the upside.
You do not need a crystal ball here. You just need to know there is far more room to fall than there is to climb.
That is the whole game on a day like this. It is not a correlated rally, not even close.
We are still basically 60/40, a damn slop fest out there, with the market grinding up on no real conviction underneath it.
Now, I am not telling you to short the open and go to lunch. Could it keep going? Sure. We might come over here, do a little dance, make a little love, and get down tonight to the upper edge. That is real. But that grand-slam home run to the upside is a diminished-probability bet, and you are risking a whole lot to chase a little.
The lesson is the part you keep long after this week is forgotten. Before you take any trade, go look at where price already sits inside the expected move.
If the market has spent most of its budgeted movement early, the patient money stops chasing and starts respecting the skew. The chicken might be done. And when the chicken is done, you do not pay up for one more bite.
This is the discipline that separates the traders who survive a triple-witching week from the ones who get run over by it. The expected move is not a prediction. It is a map of where the risk actually lives.
I am walking through exactly how I am playing this skew all week, live, with a four-day week and a Fed meeting about to pour gas on it.
To your success,
Don Kaufman
