The last time the VXN closed at this level was in September 2000, which unfortunately coincided with the start of a steady decline for the Naz
Friday May 18, 6:30 pm Eastern Time
VOLATILITY ALERT: Markets Quiet Heading Into Weekend, Joel Addison, Optionetics.com
Overall Market Volatility: There wasn’t a whole lot of action in the market today, as traders took a breather after a rather healthy rally the last few trading days. Volatility was extremely light for the major market indices, with the Nasdaq Volatility Index (^VXN) fell nearly 10 percent to 53.06. The last time the VXN closed at this level was in September 2000, which unfortunately coincided with the start of a steady decline for the Naz. It seems traders are feeling confident that the economy is improving and stocks have, going forward, a better chance of rising than falling. Today’s negative news from Dell (DELL) and Palm (PALM) didn’t take the market down as one might have expected and a couple new IPOs performed very well. At the same time, the Naz is still having problems breaking through resistance at 2,220. Today doesn’t tell us a whole lot because volume was light. Even though today was option expiration, this didn’t have much affect on volume or stock prices.
HIGH VOLATILITY RANKING 05-18-01
Symbol Company
BSYS BISYS Group Inc
NKE Nike Inc
TWTC Time Warner Telecom
TCM TyCom Ltd
MCDT McData Corp
AAPL Apple Computer Inc
PRIA PRI Automation Inc
RIMM New Focus Inc
High Volatility: Research in Motion (RIMM) has its products in the customer’s hands. The company makes wireless handheld communications devices. RIMM also makes PC cards for laptops and handheld computers. What started out as a negative day for RIMM turned into a strong move after an earnings warning from Palm. RIMM shares finished the day gaining more than 5%. With volatility high on the stock and a long-term outlook that is positive, traders may want to enter calendar spreads to take advantage of the stock’s prospects. The company has earnings in a little more than a month and after this announcement, volatility should decline. Last report, the company increased revenues by more than 400%.
LOW VOLATILITY RANKING 05-18-01
Symbol Company
QQQ Nasdaq-100 Shares
JNPR
CIEN Ciena Corporation
NOK Nokia Corporation
PFE Pfizer Inc
AOL America Online Inc
SANM Sanmina Corp
NVLS Novellus Systems
IMNX Immunex Corporation
TYC < /tr>
Low Volatility: The Qs are a tracking stock for the Nasdaq 100 (^NDX) and trade under the symbol (QQQ). The Nasdaq has had a hard time breaking through resistance, yet volatility has fallen sharply. Since the Naz is in a crucial point, traders may want to place a straddle or strangle on the Qs. If the Naz breaks out, the straddle will be profitable; if it falls into some profit taking, the straddle could work well here, too. Nevertheless, if you feel a very narrow range is in store, this is not the right play.
Joel Addison
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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