Most traders are taught that price responds to information. A headline lands, participants reassess, buyers and sellers update their views, and price finds a new equilibrium. This is a clean story. In many important moments, it is the wrong one.
Deep Optioins 05: Dealer Positioning Reflexivity Why Markets Become Self-Propelling Machines DEEP OPTIONS SERIES ISSUE 05 Markets as Information Processors — A Flawed Model Most traders are taught that price responds to information. A headline lands, participants reassess, buyers and sellers update their views, and price finds a new equilibrium. This is a clean story. In many important moments, it is the wrong one. There are stretches of market behavior that cannot be explained through opinion alone. You can watch a market extend far beyond where any rational buyer would add. You can see intraday moves accelerate despite no meaningful second wave of information. You can see a tired breakout suddenly turn violent, or a selloff that should have stabilized cascade lower. If you interpret all of this as "people got more bullish" or "people got more scared," you are narrating the tape after the fact. What is actually happening underneath is more mechanical. A position changes. A hedge must be updated. That hedge becomes flow. That flow moves price. The new price changes the position again. What looked like sentiment was often reflexivity. That is the r
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