OPTIONSMART MORNING UPDATE: Posted healthy gains

1. OUTLOOK: Stocks rallied as Dubai worries eased and GE with Comcast moved closer to a deal on NBC Universal. Altera raised its Q4 sales outlook. Texas Instruments said that it thinks it is continuing to gain market share in analog. QQQQQ has minor resistance at 44.4 and 44.65. QQQQ implied volatility remained low. The momentum is likely to keep tech stocks aloft or even push them higher through year-end.

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2. FEAR GAUGE: QQQQ implied volatility slips to 23 as Dubai fears fade away. However, it remains well above the last week lows (see the 5-day chart below). 

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: Bottoms take longer to shape than tops. Greed acts more quickly than fear and pushes stocks to drop from their own weight.

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