OPTIONSMART MORNING UPDATE: Jumped on strong economic data

1. OUTLOOK:The ISM Manufacturing Index for December exceeded expectations. After stocks ascended to new 12-month highs in late morning trade, they spent the rest of the session drifting sideways, which left the QQQQ to remain in a range. FBR Capital Markets noted while it is evident that Yahoo! is making progress in trimming costs and driving a more focused strategy. The QQQQ implied volatility inched lower. However, investors remain nervous. The first few trading sessions of a new year are typically positive and investors want to see several more days of gains on strong trading volume before betting on the rally. US futures point to a lower open.

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2. FEAR GAUGE: QQQQ implied volatility plunged again.  

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:

 Big movement take time to develop.

Never permit speculative ventures to turn into investments.

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