OPTIONSMART MORNING UPDATE: Gathering momentum

1. OUTLOOK: Investors welcomed better-than-expected corporate results, signs of stability in the housing sector and solid auto sales. Large traders used the selloff as an opportunity to dip back into stocks at a lower level. NY Times reported that Google is developing an online store where it will sell business software. Deutsche Bank raised their Palm estimates and raises their target to $20 from $19.  U.S. futures point to a higher open.

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2. FEAR METER: QQQQ implied volatility plunged to 20 as investors dumped protective puts and bet on the uptrend. 

About Implied Volatility.  Investor fear and greed play a significant role in financial markets. The question is, how can investors measure market sentiment in an emerging market situation? How can they gauge the fear? Volatility is a well-known measure of risk in financial markets. When volatility is low, there is a lack of fear. High volatility, however, suggests a fearful markets. Volatility can be calculated in two ways. Either from historical stock price data or from current option price data. Using the second method results in an implied volatility measure. It is a reflection of fear and greed amongst a wide group of market professionals. It’s not wise to ignore this parameter.

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