Don Kaufman here.
So this morning the Dow was ripping 700 points. Nvidia beat earnings, Jensen Huang said Blackwell demand is "off the charts," and you know what I'm hearing all over Twitter? "The bear thesis is falling apart."
Everyone's partying. Tech stocks flying. Meta up 10%. Tesla up 4%. Dogs and cats living together - it's all gonna be okay because Nvidia saved the world.
But here's what I was actually seeing while everyone was celebrating.
The Numbers Told the Real Story
Here's what I was seeing that morning that everyone missed: Nvidia had about a $14 expected move after earnings. The actual move? Only about 10 bucks.
You got half of nothing.
So while everyone was celebrating this as a massive win, I'm thinking - if Nvidia can't even hit its expected move on a "beat," what does that tell you?
The marketplace was telling you something: We don't give two beeps about Nvidia. It was just the excuse to buy the dip.
And a few hours later? Boom. Nvidia gave up the gains and went negative. The numbers called it before the headlines caught up.
Here’s what else that tipped me off…
This Was All Options Flow - Not Real Investment
Here's what was really bothering me about that morning. Look at Tesla - almost a million option contracts trading, but only 20 million shares. You understand what that means?
Those million option contracts require damn near 14 million shares just to hedge.
All of that stock volume was based on options flow. This wasn't investment. This wasn't people rushing back in to "buy the market." This was 100% short-term trade, nothing more.
I was expecting people to actually come in and buy. There was no buying in there. This was just all options order flow.
I Called The Reversal in Real Time
So I'm sitting there that morning thinking this is absolutely ludicrous because we're trading predicated on one stock's earnings, and I said something that probably sounded crazy at the time:
"If you looked at this marketplace by late today and the S&Ps gave up the hundred points and were down a hundred, I would not be surprised."
Well guess what? A few hours later, that's exactly what happened.
Dow gave up the entire 700-point gain. Turned negative. Nvidia down 2%. Rate cut hopes dimmed. The whole "bear thesis is falling apart" narrative? Dead.
What Everyone Missed
What everyone missed was basic market mechanics. You don't pop out of volatility that you've been in for three weeks because of one announcement. It would take days or even weeks for that to resolve itself.
The VVIX had been at 120. You know how long it takes to resolve those hedges, to unwind those hedges?
The unwinding of the hedges alone was going to cause two-sided trade.
But people got caught up in the noise. They were caught in noise.
The Real Signal vs. The Noise
While everyone was reading headlines about Nvidia earnings, I was watching:
- Options flow completely dominating share volume
- Nvidia failing to hit its expected move
- Correlation driving everything (Starbucks up because Nvidia's up?)
- VVIX telling a different story than the headlines
That's signal. The celebration? That was noise.
What This Proved
This proved what I was saying - this was the biggest suck yet. And people bought it. They loved it. They hopped in thinking it's all gonna be okay.
But here's what actually happened - this vicious sawtooth pattern isn't going anywhere. We get these rip-your-face-off rallies that suck people in, then reality sets back in.
The options order flow was the dictator here. It's the cart leading the horse. And the marketplace rug pulled because it's all just short-term positioning.
My Trades
By the way, I had traded for this bounce. Put on bullish positions in Meta, Nvidia butterflies, some spreads. But I used defined risk on everything because I didn't trust this marketplace as far as I could throw it.
If you're gonna get bullish on these rips, use spreads. Because days like this prove that in a few hours, everything can change.
The Bottom Line
When you see 700-point rallies driven entirely by options flow, when the "catalyst" stock can't even hit its expected move, when there's no real investment behind the move - that's not the start of something bigger.
That's just another episode in the volatility we've been living in for weeks.
The two-sided trade is still here. The marketplace is still destabilized. And if you were listening to the crap about "Nvidia saved us," you got caught.
Sometimes the best trade is seeing through the noise while everyone else is partying.
To your success,
Don Kaufman
P.S. I think there is a bigger sell-off in the works…which could crush the AI trade and take a lot of folks down with it. In order to survive, you’ll need the right strategies. And if you want to actually come out ahead then we can help. That’s why TheoTrade is giving you a chance to double your BUYING POWER this Black Friday.