If you are watching the market closely, a true sell-off doesn’t come out of nowhere. You will generally see it unfold — unless it is a rare overnight shock event like COVID-19 or a black swan.
In those cases, you might miss the initial gap down. But that doesn’t mean you miss the whole move.
For example, during the COVID-19 sell-off, the initial gap was followed by a much larger move lower. Once the S&P 500 broke below prior support and key moving averages — such as the 50-day — you had a clear signal to either stop yourself out or hedge.
When it then dropped below the 200-day moving average, the trend was confirmed as bearish.
The point is, even if you missed the first gap, you had plenty of time to recognize the trend change and act. From that point forward, you could have protected your capital or even captured the downside move.
How the Options Market Reveals Early Clues
Now, can you always get ahead of a move before it starts? Not in every case — no one on Wall Street saw COVID-19 coming in the way that it did. But once the big money begins to reposition, the options market will give you early clues.
That is why I focus so much on options signals in Quant-X. Before the COVID-19 crash accelerated, we saw implied volatility spike sharply — a sign that market makers were pricing in much larger moves ahead.
At that point, the options became extremely expensive, signaling that institutions expected significant volatility.
This is a major warning signal and the best edge you can have — because volume and price lag. Options pricing shows you where expectations are headed before the move fully plays out.
If you learn to read those signals, you won’t be the last one caught in a sell-off.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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