The bet on $4.20 gas loses more than half its value

Ten days before settlement, the above-$4.20 contract falls to 28% from 79%.

In one line: AAA's national average for regular gas ends October at or below $4.20, and the 28% price on a higher reading still gives it too much room.

Traders have abandoned the case for gas above $4.20 at the end of October. The Kalshi contract on AAA's national average for regular gas on 31 Oct fell 20 points in the last 24 hours to 28%. It traded at 79% on 18 Oct and touched 25% on 20 Oct, a drop of 51 points from the high. Over the 7 days it is down 46 points, from 74% on 14 Oct.

The rest of the ladder shows where the money went. Traders price gas above $4.00 at 98% and above $3.90 at 99%, while above $4.30 sits at 8% and above $4.60 at 2%. That puts most of the weight between $4.00 and $4.20. The $4.40 rung, at 10%, trades above the $4.30 rung, at 8%. Gas cannot be more likely above $4.40 than above $4.30, so the upper rungs are not pricing consistently, and the $4.00 and $4.20 contracts carry the real view.

The ladder points to a narrow call rather than a slump. Traders moved from expecting gas just above $4.20 to expecting it just below, and a few cents on the AAA average decide the contract. A swing this large in three days fits an average sitting close to the line. The oil fund USO fell 1.28% on 20 Oct, which points the same way, since crude is the largest input to pump prices, though it reaches the pump with a lag. The 3-point bounce from the 20 Oct low shows traders have not written the higher outcome off.

Gas ends October at or below $4.20, and the 28% price still overrates the higher outcome. The best case against is that pump prices move slowly, and a crude rebound or a refinery outage in the final week could lift the average a few cents over the line. AAA's national average for regular on 31 Oct printing above $4.20 would prove this call wrong. If it holds, drivers enter November paying less than traders expected a week ago, in line with the weaker oil price USO showed on 20 Oct.