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The S&P 500 is shattering records, but NFLX is sliding despite strong earnings as Reed Hastings exits the board — is this a trap or a “buy the dip” moment? [tap to join us for Profit Panel]
The market can make you look stupid real quick, and Feb. 23 was one of those days.
We were in the middle of the “Tariff Monday” chaos following the weekend’s IEEPA announcements, and by mid-afternoon the S&P 500 (SPX) was attempting a bounce off the $6,880 support level.
On the surface, it looked like a classic bear trap. Indicators were flashing oversold, dip-buyers were stepping in, and the narrative was already forming that the worst had been priced in.
I kept hearing the same thing: We’re gapping back to $6,950 tonight. Easy money.
I didn’t buy it — not because I like fading the crowd, but because the 0DTE data was telling a completely different story.
What the Options Market Saw That Charts Didn’t
There was a massive buildup of puts with heavy net negative gamma exposure. That matters because it tells you how dealers are positioned and what they’re forced to do next.
In this case, they weren’t set up to support the bounce. They were set up to sell into weakness to stay hedged.
That’s exactly what happened. The tariff turmoil intensified overnight, the SPX flushed another 1%, and the move turned into a 41% return for traders positioned with volatility instead of hope.
Anyone chasing that 4 p.m. candle got run over before the next open.
0DTE contracts — zero days to expiration — have become one of the dominant forces this year, often pushing more than 3 million contracts in daily volume.
Because they expire within hours, they force dealers into rapid, mechanical hedging. That hedging isn’t optional — it’s required risk management, and it often dictates the direction of overnight price action.
Charts tell you where price has been. The options book tells you where pressure is about to be applied.
The Edge: Dealer Imbalance
This isn’t a one-off situation. It’s a repeatable edge driven by positioning.
When dealers are short gamma — which usually happens when traders pile into puts — they’re forced to sell as price drops and buy as price rises. That amplifies the move instead of stabilizing it.
We saw it again on Feb. 10. Weak retail sales triggered a sell-off, and most traders expected more downside overnight. But the options data showed a heavy call imbalance, forcing dealers to buy to hedge, which pushed the SPX higher into the next session.
A simple trade placed at the close returned 59.2% by the open.
The same dynamic showed up on Jan. 26. The SPX was grinding toward $6,950 with choppy price action, but the options market was loaded with calls. Dealers had to hedge that exposure by buying, and the result was a clean overnight gap that produced a 45.8% gain.
It doesn’t matter whether the market is rallying to new highs above $7,000 or selling off on macro headlines. This edge doesn’t change because it’s rooted in how the system is built.
On Mar. 5 stocks were rallying into the close and it looked like a breakout was underway. Traders chased it late in the session, but the options data showed heavy negative exposure waiting underneath.
That “breakout” turned into a gap down to $6,740 overnight, wiping out anyone who followed price without understanding positioning.
The Real Lesson
I don’t trade headlines. I don’t trade vibes. I don’t chase what looks obvious on a chart.
I follow the pressure.
When you understand where dealers are forced to hedge, you stop reacting to moves and start anticipating them. It’s not about predicting the market — it’s about understanding the mechanics behind it.
That’s the difference between getting trapped in a move and positioning ahead of it.
To better trading,
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To better trading,
Alex Reid
WealthPin
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