Scott Burrill - Market Notes

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Scott's Market Notes

Adapting Risk Pricing to a Range of Possibility

Jan 28, 2019

Last week the SP500 balanced near the Weekly Magnet for 3 days, tested the lower edge of the implied move several times to only find itself virtually unchanged on the week.

Once again, the Market is holding near the updated Weekly Magnet of 2649.75 with a Weekly Option Implied Move of + / - 47 points, or a range of 2617 to 2711. This means we have a 68% probability of closing within this range for the week. Will we trade that in a single session? It happened last week and is likely to occur again this week, particularly when we evaluate realized versus implied volatility and consider the possible catalysts this week.

I place great weight with these possible ranges since if the market is properly pricing risk, then that is what should happen. Recall, if the market should do something and doesn’t, then the opposite is often much more reactionary. This week, we have a real-time assessment with 4 option expirations in the SPX to gauge risk.

The low implied move is certainly surprising given the potential catalysts this week from US-China talks, FOMC Meeting,  Fed Chair Powell Press Conference, Employment Situation Report, and the largest release of  earnings this cycle.

But of course, we’ve observed many occurrences where we breach those weekly implied moves intraday, to then close out the week within the implied move. That is an efficient pricing of risk. Alternatively, we observed just last year, a period where we closed outside of the weekly implied moves 85% of the time. That is a market inefficiently pricing risk.

This matters in real-time as tens of billions of dollars is dynamically triggered that our process mines fo factor into what we call risk confluence zones. Our precomputed Levels are a key component when married with intelligent order flow dynamics to cracking the code of this new market.

Tactically, there are too many idiosyncratic factors to focus on this week. But simply, we know the range of possibility, the go/no-go magnet, key levels, known catalysts and the current trends. This market has wanted to go higher and is doing a poor job of it. If catalyzed, will it be able to sustain strength? Possibly, with the backdrop of positive weekly trend dynamics on one model.

We know with high certainty that the outer edges of the implied move and computed Levels (not shown) provide excellent points of reversion. The map up or down is revealed and can be adapted in real-time as data points are absorbed.

30-Minute Levels

All the best,


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