Stock Market Fights Off Volatility

Posted on by The INO.com Team

Stocks soared on Friday, culminating with the DOW having its best day of trading since November 2020, but was this bounce back at the end of a volatile week and end to the wild ride, or is there more pain on the horizon?

On a daily level, the DOW added 834.92 points or +2.51%, closing at 34,058.75. The S&P 500 gained +2.24% at 4,384.65, and the NASDAQ rose +1.64% to end the day and week at 13,694.62.

However, the +800 point move by the DOW was not enough to push the index into positive territory for the week, with it losing -0.06%. On the flip side, the S&P 500 and the NASDAQ finished the week +0.82% and +1.08% higher. Continue reading "Stock Market Fights Off Volatility" →

Options Trading And Implied Volatility (IV) Rank

Posted on by Noah Kiedrowski

Recent Market Correction and Options

The post-pandemic gains have been negated as the accommodative monetary policies are coming to an end. The market has been smacked in the face with several macroeconomic issues via unsustainable inflation, impending interest rate hikes, and geopolitical issues. As such, a third of the Nasdaq 100 stocks are off at least 30% from their highs, half of the S&P 500 has fallen 15% or more, while the median biotech stock has sold off by 60%. Leveraging the Ark Innovation ETF (ARKK) as a proxy for the high-flying growth stocks, this composite is down 60% as well.

This multi-month period of sustained weakness has been accompanied by extreme volatility. With the increase in overall market volatility, implied volatility (IV) and IV Rank become advantageous for option traders as rich premiums can be collected when selling options. This type of extremely volatile environment that we've been faced with recently reinforces why risk-defined options (i.e., put spreads, call spreads, and iron condors) are critical if one chooses to leverage options as a component of an overall portfolio strategy. Risk-defined option trades establish your max losses and allow one to leverage a minimal amount of capital while maximizing returns.

Options and Implied Volatility

The goal of options trading is to sell options and collect premium income in a consistent and high-probability manner. Enabling your portfolio to appreciate steadily month after month without guessing which direction the market will move. The main key for options trading success is leveraging implied volatility and time premium decay to your advantage. Since options premium pricing is largely determined by implied volatility, it's this implied volatility component, when used appropriately, that provides option traders with a statistical edge in trading over the long term (Figure 1). Continue reading "Options Trading And Implied Volatility (IV) Rank" →

Is The Powell Put dead? Maybe Not

Posted on by George Yacik

Last week a bevy of Federal Reserve officials led by New York Fed President John Williams, "who is one of the most senior advisers to Chairman Jerome Powell and helps shape the policy agenda," in the words of the Wall Street Journal, tried to talk down the market's concern that the Fed is about to ratchet up interest rates aggressively, starting with a 50-basis point hike at its next meeting March 15-16.

"There's really no kind of compelling argument that you have to be faster right in the beginning" with rate increases, Williams said last Friday. "There's no need to do something 'extra' at the beginning of the process of liftoff. We can…steadily move up interest rates and reassess. I don't feel a need that we'd have to move really fast at the beginning."

The 50 bp talk got started by St. Louis Fed President James Bullard, who had said earlier that "the best response to this situation [meaning the recent surge in inflation to 40-year highs] is to front-load the removal of accommodation." That provoked a large selloff in the stock and bond markets. Subsequently, several Fed officials and regional bank presidents, including Williams, pushed back on that assessment, saying that the Fed would take a more measured approach to raising rates. The desired path now seems to be a 25-bp increase at the March meeting, following which the Fed would see what effect that would have before taking the next step. Continue reading "Is The Powell Put dead? Maybe Not" →

Gold Update: Handle Is Broken, Cup is Next, Target $2,800

Posted on by Aibek Burabayev

Back in October 2020, one of our readers suggested that the famous Cup & Handle pattern could have been built in the gold chart. I have checked his idea and visualized it in that very chart below from the past.

Gold

At that time, the main element Cup had already been shaped (blue). The final part of Handle was yet to appear. I highlighted the hypothetical trajectory with an orange zigzag in the declining red channel.

Let's see what is going on in the gold futures monthly chart below to check if that assumption came true. Continue reading "Gold Update: Handle Is Broken, Cup is Next, Target $2,800" →

Crypto Regulation Takes A Much-Needed Step

Posted on by Wayne Burritt

As I told you back in October, one of the best ways to make sure that blockchain and cryptocurrency continue to mature as assets is for moderate and sensible regulation to take place. And I stand by what I said back then:

"Right now, it's still the Wild West when it comes to crypto regulation. Rules are uncertain, murky, and poorly constructed. And while that lack of regulation may appeal to the egalitarian spirit of crypto, it scares investors. And when they're scared, they'll likely put their money in other asset classes. And that's bad for the whole sector."

But I wasn't alone in my call for regulation. Later that same month, I talked about the nitty-gritty behind the bombshell crypto report from financial behemoth Bank of America. And if you dig into the report, you can see that they feel like regulation is a good thing as well:

"Regulatory uncertainty is the largest near-term risk in our view, but regulation may drive increased investor participation over the long term once the 'rules of the road' for digital assets are established."

While there has been lots of talk about doing something from a regulatory standpoint, it looks like regulators are finally putting their money where their mouths are.

Here's what I mean. Continue reading "Crypto Regulation Takes A Much-Needed Step" →