Jobs Alert Shop: Volatility Isn’t Chaos—It’s Your Greatest Opportunity

الخميس، 6 مارس 2025

Volatility Isn’t Chaos—It’s Your Greatest Opportunity

March 06, 2025 | Read Online

Don Kaufman here.

I want to start by reminding you that I'm going LIVE today at 2 PM EST to talk about one of the most profitable opportunities in this wild, volatile market.

If you think the chaos is over, think again. This market is just getting warmed up, and the moves we're seeing right now are nothing short of explosive.

Today, I want to talk about one big idea from this morning's action: volatility is not chaos—it's opportunity.

When the market gets wild, people panic. But the truth is, volatility is the lifeblood of short-term trading.

If you know how to read it, trade it, and manage it, volatility doesn't just create opportunities—it hands them to you on a silver platter. Let's dive into why volatility is the biggest signal you should be watching and how to use it to your advantage.

What Is Volatility Really Telling You?

Let's cut through the noise. When markets are calm, nobody cares about the VIX (volatility index).

But when things get messy—when the S&Ps drop 75 handles overnight, or the Nasdaq sells off 2% at the open—that's when the VIX starts screaming.

This morning, for example, we woke up to a market in "big-boy backwardation." If you're not familiar with the term, backwardation happens when short-term volatility is priced higher than long-term volatility. It's a sign that the market is desperately trying to price in uncertainty.

Think of it this way: when the VIX is in backwardation, it's like the market is driving 90 miles an hour on a foggy road—you know something's about to happen, but you can't see more than three feet ahead of you.

Why Volatility Is a Trader's Best Friend

Here's where most traders get it wrong: they see volatility as their enemy. They think, "The market is too crazy—I'm staying out." Big mistake.

Volatility isn't chaos; it's movement. And as traders, movement is what we live for. When the market swings wildly, that's when you get those 24-Hour Profit Windows—those short bursts of opportunity where the risk-reward is off the charts.

Take today, for example. I closed out a 55% gain on XLU this morning.

Why?

Because I knew the market was primed for a short-term move, and I didn't hesitate to take profits when the opportunity presented itself.

Here's the secret: it's not about predicting the market. It's about understanding what volatility is signaling right now and positioning yourself accordingly.

The 3 Key Signals Volatility Provides

If you want to thrive in this market, you need to understand what volatility is telling you. Here are the three key signals I watch every single day:

1. Backwardation = Panic

When short-term volatility (front-month VIX futures) trades higher than long-term volatility, it's a sign the market is stressed. Backwardation tells you that traders are hedging aggressively, and this often leads to exaggerated price moves.

This is exactly what we're seeing today. The VIX futures are showing almost a full point of backwardation, and that's a big deal. It means we're in the middle of a high-risk, high-reward environment.

2. Correlation = Capitulation

When everything starts moving together—stocks, bonds, commodities—you know the market is in full-blown panic mode. This morning, we saw negative 1,100 ticks at the open, and the entire market was moving as one unit. That's a sign we're closer to capitulation, and the best opportunities often come right after.

3. Liquidity = Fuel for the Fire

When liquidity dries up, the big players (hedge funds, institutions) can't move without making waves. This creates the kind of exaggerated price action that traders like us dream of.

Stop Asking "Why" and Start Acting

One of the biggest mistakes traders make in volatile markets is overthinking. They want to know why the market is moving. Is it inflation? Tariffs? The Fed? Forget about it.

Here's the truth: the market doesn't care why. It only cares that it's moving. And when it moves, we trade.

Take the action this morning.

The S&Ps were down 75 handles overnight, but by the time the cash market opened, we started to see a bid-back rally.

Did it matter why? No.

What mattered was understanding that this kind of volatility creates short-term opportunities—and knowing when to take your gains.

How to Trade Volatility Like a Pro

If you're not using defined-risk strategies in this market, you're playing with fire. I don't care how confident you are—volatility doesn't play favorites.

The Opportunity Is Now

Let me be clear: markets like this don't come around every day. The volatility we're seeing right now is creating some of the best trading opportunities I've seen in years.

But these windows don't stay open for long. If you're not ready to act, you'll miss them.

That's why I'm going LIVE today at 2 PM EST to break down exactly how I'm trading this market. I'll show you: