01/26/10 Chicago, Illinois – I believe we’re still at a reasonable level of volatility. If anything, last week’s correction was long due. The 5% S&P sell-off was the worst since March 2009. Put in perspective, though, 15-month S&P highs were made Monday, Jan. 19 – a mere five trading days ago.
Last week has definitely gotten our attention, but remember, we have seen this action repeatedly before. For the last 10 months, every time the market looks like it will turn down, it has responded with a rally to new relative highs. Take a look:
One component in pricing for the options that we trade here at Resource Trader Alert is volatility. For our purposes, it helps us determine simply to buy an outright option if prices are cheap or to purchase a spread if they’re expensive. An increase in volatility is an increase in price movement – and don’t forget we need the markets to move in order to make money on our positions.
It may be cliché, but my nearly 20 years of experience makes me most afraid when others are not and gives me a sense of calm when the public is frantic and unhinged… Risk is always quantified and controlled with our strategies and that does not change as volatility increases, but opportunities do.
Alan Knuckman
Alan Knuckman brings two decades of commodity trading experience to his role as managing editor of Resource Trader Alert, a weekly newsletter providing analysis and real-time updates on current and evolving market conditions. Graduating with a business degree from Michigan State University, he worked for a premier trading firm and the Chicago Board of Trade (CBOT) where he rapidly learned all aspects of the futures industry. He currently holds series 4 and 24 securities registration credentials. His options, futures, and currencies experience have made him a sought after commentator on issues shaping both hard (extracted or mined) and soft (grown or produced through the agriculture industry) commodities. He is a frequent guest on major international media outlets including CNBC, Sky News, MarketWatch, Bloomberg, Fox Business Network, CNN Money, and Reuters.
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You Americans are really in trouble if you think 5% is a correction. I call 5% noise.