OPTIONSMART MORNING UPDATE: Slumped again

1. OUTLOOK: The market slumped as a strong dollar and questions about China's lending practices slammed commodities. IBM dragged on the tech sector as investors picked apart the company's outlook one day after sending the stock higher. The earnings and profit margins were good, but revenues were mostly in line with estimates and the outlook was good not great, relative to very high expectations. Market breadth was negative. This pullback is expected to be short-lived.

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2. FEAR METER: QQQQ implied volatility jumped in early going but faded away before closing as bullish sentiment still prevailed.

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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