The Return of Market Volatility

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:

Market Volatility

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.

The Daily Reckoning