OPTIONSMART MORNING UPDATE: Hit new highs

1. OUTLOOK: Stocks finished higher on optimism about a recovery in retail sales. Among others movers, Fannie Mae and Freddie Mac both rallied after the Treasury Department removed its $400 billion cap on the amount of money it will spend to keep the companies afloat. The market lost steam in the afternoon and then recharged by the close. Stocks have now risen for six straight sessions. However, the upside seen limited. QQQQ implied volatility inched higher. 

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2. FEAR GAUGE: QQQQ implied volatility inched 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.

QQQQ Feb 43/45 Debit Call Spread: Sold @1.49 on 12/24/09 with a 10.6% gain in 3 days! 

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