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Don Kaufman here. |
I ain't gonna miss another one… |
Just this past week, I've had random people I haven't talked to in years calling me about crypto and Ripple. |
Then yesterday, two different guys at the gym here on the island stopped me specifically to ask about Bitcoin. |
These aren't finance people - one's a government official, Duke educated, smart as hell. |
But when people cutting your hair or working out next to you start talking about an asset class, you're about to get screwed. |
I've seen this movie before. Time and time and time again. |
Back in '98-'99, I was brand new trading in Chicago, standing outside the CBOE getting a sandwich. |
Random people in line - not traders, just people who worked in the area - all talking about IPOs. Months later, the market completely collapsed. |
Fast forward to 2006-2007. I was running a division at thinkorswim, living between Scottsdale and Chicago. I'd go to this Starbucks in Kierland, and the place was packed with real estate agents writing deals. |
Everyone was talking about this heated marketplace. Of course, in hindsight, we know what happened next - the financial crisis absolutely destroyed everything. |
This is what I call my "Starbucks indicator." It's completely anecdotal, but it's never been wrong. |
And right now? |
It's crypto. |
You're on the clock at this point. |
The Problem with Timing the Top |
Here's the thing - could be days, could be a year. |
But when you're literally out of your damn mind if you try to actually short crypto outright. |
The upside will absolutely kill you. The skew is so wild in there. |
When I say take stabs at it, you're going to have to use defined risk positions, like the ones I teach for my in/out strategy. |
Go out into products like BITO, buy out-of-the-money put spreads, use risk reversals. |
You might have to trade three or four risk reversal spreads before one actually comes to fruition. |
The fact of the matter is, we're probably well overdue for a major correction in this marketplace. |
I think we're probably on borrowed time. |
While Everyone's Gambling on Earnings, Here's the Real Play |
Speaking of borrowed time, let's talk about what's happening this week. |
Everyone's making directional bets on whether Google and Tesla will beat earnings expectations. |
The crowd is positioning for "easy money" from the 85% beat rate and basement-low expectations. |
But here's what they're missing: systematic options trading isn't about guessing outcomes. It's about capturing mathematical drift regardless of whether they beat or miss. |
For example, my earnings strategy nailed 3 triple-digit winners. Here are more details on how it works. |
Now, lets talk about this week's setup. |
We've got a $75 expected move on the SPX - that's $30.73 daily. We hit that daily move in the first 26 minutes of trading this morning. |
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The weekly expected move? |
We're almost assured to hit either the upper or lower edge. |
In the last two weeks, we didn't hit either edge. |
Do we have three consecutive weeks of not hitting the expected move range? |
I've only seen that once since 2017. |
The Volume Problem Nobody's Talking About |
Here's what's really concerning me. |
We're making new highs on horrifyingly low volume. We're not even doing 2,000 contracts a minute in the S&P futures. I've personally traded more than that in a single minute when I was working for a firm. |
It's insane to see such lack of enthusiasm as we break to new highs. |
This entire move has nothing to do with actual share volume - it's 100% the options marketplace driving everything. |
Pure call buying creating a gamma squeeze. |
But the one thing you can never tell about these squeezes is whether they're sustainable. |
We've seen plenty of mornings where you open hot, everyone buys calls, then it just dies out and drifts. |
What I'm Watching This Week |
Google earnings Wednesday night, Tesla coming up - these are tradeable events, but not because of the fundamental story. |
The options flow and expected moves create the real opportunities. |
Again, if you want to learn more about how I trade them, click here. |
I'm also keeping an eye on the emerging markets trade I put on looking for tariffs to finally matter. |
We're just days out from the August 1 deadline, and the market is acting like tariffs don't exist. |
That concerns me, because when reality hits, volatility is going to spike hard. |
The VIX futures are already pricing much higher volatility 30-60 days out. The market knows something's coming. |
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The Systematic Advantage |
Look, I can tell you right now - when this crypto bubble bursts and when these gamma squeezes finally end, it won't be because of some fundamental analysis or technical indicator. |
It'll be because the systematic flows that have been driving everything suddenly reverse. |
The beauty of systematic options trading is that you don't need to predict when that happens. You just need to position for the mathematical realities: markets move in ranges, volatility mean-reverts, and expected moves get hit more often than they don't. |
While everyone else is making emotional bets on earnings beats and crypto moon shots, the systematic approach keeps grinding out consistent returns. |
Action: Set alerts for SPX at 6340 (upper expected move edge) and 6190 (lower edge). |
When we approach either level, look for butterfly opportunities on the opposite side. |
For crypto exposure, consider BITO put spreads rather than outright shorts. |
If you want to trade with me live, join me in the TheoTrade room. |
The clock is ticking. |
I ain't missing this one. |
To your success, |
Don Kaufman |
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