OPTIONSMART MORNING UPDATE: Jumped on bargain-hunting

1. OUTLOOK: A better-than-expected housing report, a weak dollar and a surge in commodities were pushing the market higher. However, the market was unable to hold early gains and drifted lower afternoon. After the close, Hewlett-Packard reported higher quarterly earnings in line with its raised forecast that was released last week. The tech giant also reported a drop in revenue. Earnings grew thanks to strength in China and better profit margins. Tuesday brings reports on housing and consumer confidence in the morning, as well as the latest revision of third-quarter GDP growth.

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2. FEAR GAUGE: QQQQ implied volatility slipped to 19.5, below 52-week lows as recovery fears faded away.

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: " Leverage is a very dangerous thing.  And perhaps, you know, Warren [Buffett] talked about derivatives as weapons of mass destruction."  Bill Gates. Transcript of the CNBC Town Hall event Warren Buffett and Bill Gates: Keeping America Great, taped Thursday, November 12, 2009 at Columbia University in New York City.

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