OPTIONSMART MORNING UPDATE: S&P 500 finished above 1,100

1. OUTLOOK: Broad-based buying on the back of a weaker dollar drove the major indices to new highs. Energy and materials stocks benefited the most. the broader equity market pared a small part of their gains in the final hour of trade. Bernanke said economic recovery will be modest. The tech sector could continue higher as the broader market overcomes key technical levels and more investors are drawn in from the sidelines. the market is becoming more convinced that an economic recovery is under way. Credit Suisse upgraded Sprint. Cisco announced a revised recommended voluntary cash offer to acquire TANDBERG. QQQQ's implied volatiltiy inched hgher.

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2. OUR "FEAR GAUGE":  Monday, the NASDAQ implied volatility rose 2% to 23.13 (see the 5-day chaart below) as investors became more cautious. Bullish sentiment still prevails.   

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. This represents a forecast of uncertainty over a specific period of time. The implied volatility on NASDAQ-100 represents the consensus of option traders’ forecasts for the index volatility over the next 30 days. 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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