OPTIONSMART MORNING UPDATE: Sunday Edition

1. OUTLOOK: The dollar has played a key role in the market action of the past two days, with dollar-denominated assets exhibiting a strong inverse relationship with the currency. Technical levels have also played a role in the end-of-week action. After declining as much as 2% in early going, the market was able to erase huge losses and found support at this level. The tech sector is poised to bottom out in the coming days. Volatility could remain elevated next week as the market continues to digest macroeconomic factors and growing uncertainty. 

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2. FEAR METER: QQQQ implied volatility erased intra-day fears and finished little changed.  

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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