OPTIONSMART MORNING UPDATE: Failed to hold gains

1. OUTLOOK: The reversal came as financials fell out of favor and concerns mounted for today's jobs report. A disappointing ISM reading didn't offer any help. Marvel Technology and Novell beat estimates. Cisco upgraded to Buy.  On the Nasdaq, decliners topped advancers by a narrow margin. QQQQ implied volatility inched higher.

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2. FEAR GAUGE: QQQQ implied volatility turned higher.  

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.

4. WISDOM NUGGETS: Option traders must understand and keep an eye on implied volatility. Implied volatility is the volatility percentage that justifies the option price and reflects the market's perception of the risk.

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