OPTIONSMART MORNING UPDATE: Resuming the rally?

1. OUTLOOK: Gains were broad based. IBM led a tech charge ahead of its quarterly results, released after the closing bell. After the close, IBM reported higher quarterly sales and earnings that topped estimates. But investors sent shares 1% lower in extended-hours trading. Reuters reported that Apple will host a special event on January 27 where it is widely expected to unveil its tablet computer. The tech sector lacks a catalysts to extend rally.

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2. FEAR METER: QQQQ implied volatility slid to record lows as investors dumped protective puts and bet on the uptrend.

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.

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