How to Trade Inside the Red Zone 101

When comparing how NFL markets react to both scoring drives and actual scoring its important to consider how the red zone effects the market perception and price discovery at different moments in the game.

Probably the biggest consideration when looking at a scoring drive entering the red zone will be the amount of time left in the game. Obviously the more time left (Q1 and Q2) the less sensitive price movements will be with each first down, red zone try and actual scoring play. As there is less time left before the market closes the more likely you would see price action moving in a significant way.

When looking at macro NFL statistics we can see the top team, Jacksonville Jaguars, scored when in the red zone almost 70% of the time. The Denver Broncos, the leagues least effective team, scored once in the red zone at a 40% rate. These figures should always be taken in the game context to understand how much of a move the market should expect to see.

We should be able to determine using these types of scoring rates the expected probability of a price move for both the defense and offense on any given red zone chance. What will become the larger skill is determine how much of a price move will the market experience given all of the other factors (time left, score, current price, favorite vs. underdog, injuries, current momentum, etc) that are present compared to the actual outcome of the drive.

Examples of red zone considerations:

Q2 10:43 left

NEP - 7 ($55)

NYJ - 10 ($45)

NEP driving on NYJ 25 yard line (1st down)

The NEP drive itself should be good to start moving the market higher but by home much? Given NEP is down by (3) but still trading above $50 means there are less traders willing to sell their shares even with the current score. The market, thru pricing, is telling you that it wants to buy NEP and is simply waiting for an opportunity to do so. A NEP red zone trip here has great potential of price impact even this early in the game. One of the keys to success on BallStreet is identifying all of the components of pricing outside of the game itself.

Q4 3:22 left

NEP - 21 ($62)

NYJ - 21 ($38)

NEP driving on NYJ 25 yard line (1st down)

This scenario offers a couple of different angles to consider when attempting to decide to enter a trade. A tied game in Q4 with a clear market defined favorite (NEP @ $62) who is driving and about to enter the red zone. The expectation ready to price will be not only a NEP score but a score that could decide the ultimate outcome. You should trade with the understanding that each play has the potential to move the price enough to make a profitable trade. One big first down giving a 1st and goal opportunity to NEP could force the market to price in a TD and pull in late buyers (traders buying or selling after a major game event) which would likely overvalue after the score. It wouldn’t be surprising to see the NEP price move from the current $62 to north of $80 after a successful red zone trip and score.

As you are looking to trade red zone drives you must be able to act quickly to ensure you are properly pricing yourself against the late market. There is just too much upside if you are correct compared to the downside of missing a big trade and losing out on big P&L towards the leaderboard. Those players who are able to constantly trade before big events, especially in and around the red zone will always have an advantage compared to those who simply trade events as they happen.