What I’m Looking to Trade The Week of Jan 5-9, 2026

We head into the first full trading week of the year with a dense macro calendar, elevated event risk, and market structure that remains highly sensitive to short-term flows. Together, these conditions create the potential for sharp intraday moves and volatility expansion, particularly as traders begin positioning for the first quarter. Below are the three primary drivers we’re watching in the week ahead.

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1. A Front-Loaded Macro Calendar with Asymmetric Risk

The week begins with ISM and PMI data, but the focal point is Friday’s Non-Farm Payrolls report, which will capture December labor conditions. A meaningfully weak print would mark the second negative employment signal out of the last three reports, reinforcing concerns around labor market softening and increasing the probability of policy repricing.

These releases matter less in isolation and more in how they interact with positioning and options flow—particularly given the market’s current sensitivity to growth and rate expectations early in the year.

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2. Short-Dated Options Flows as a Primary Intraday Driver

Short-dated (0DTE) options remain one of the most important intraday drivers of S&P 500 price action, and we expect this dynamic to be especially pronounced in the week ahead.

Throughout 2025, 0DTE options grew into a dominant component of daily options flow, with many sessions seeing over 60% of S&P 500 contracts concentrated in same-day expiries. This flow has materially altered intraday market behavior, particularly around dips and short-term support levels.

When traders sell 0DTE puts or buy short-dated calls, dealers are often forced to hedge dynamically. In rising or stable markets, this hedging process typically results in incremental long exposure, which can create a short-term tailwind for prices and reinforce the familiar “buy-the-dip” behavior seen during much of the past year.

However, this support is conditional.

During periods of elevated event risk—such as major macro data releases—0DTE participation can drop sharply. When short-dated flows fail to materialize, intraday support becomes thinner and more fragile, increasing the likelihood that key levels break rather than hold.

Trading implication:
With a heavy macro calendar this week, we expect strong 0DTE activity early in the week, which can fuel sharp intraday moves, including 1%+ swings. At the same time, traders should remain alert to moments when these flows step aside, as downside moves can accelerate quickly in their absence.

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3. Volatility Setup Favors Episodic Expansion, Not a Straight Trend

Volatility conditions entering 2026 suggest a shift from the unusually calm environment seen late last year toward episodic volatility expansion, particularly in the first quarter.

We ended the year with one-month realized volatility near historically low levels, while forward implied volatility continues to trade at a premium to spot. This structure indicates that market participants are pricing in a higher probability of volatility ahead, even if near-term conditions remain quiet.

Several factors support this view:

  • A dense macro calendar early in the year
  • Sensitivity to labor market and inflation data
  • Political and policy uncertainty as the new year begins

Rather than expecting a sustained volatility trend, the more likely outcome is short, sharp volatility spikes—often lasting one to three weeks—followed by periods of relative calm.

Trading implication:
This environment favors selective, time-bound long volatility exposure rather than constant positioning. Instruments such as VIX or volatility-linked products can offer asymmetric opportunities if entered during periods of compressed volatility and rising event risk. Conversely, traders should be cautious about assuming that low volatility will persist simply because recent conditions have been quiet.

In Closing

The first quarter is likely to play an outsized role in setting the tone for 2026. With policy uncertainty, macro data sensitivity, and options-driven flows all elevated, traders should expect a more reactive market environment—particularly in the weeks ahead. Staying focused on key events, positioning dynamics, and volatility conditions will be critical as the year gets underway.

For a broader framework on the regime shifts we’re watching this year, we encourage readers to review our full 2026 outlook.