Benzinga - by Sandra Stone, Benzinga Contributor.
Forget graceful waltzes and headbanging mosh pits. Market volatility is closer to a dynamic tango, sometimes smooth and seductive, other times a whirlwind of passionate steps. High volatility brings bold spins and dramatic dips, while low volatility whispers of gentle sway and predictable rhythms. Right now, the market's a snoozefest, but earnings season could turn up the tempo and ignite some fiery footwork.
So, what drives this tango's passion? News headlines like war drums, market whispers, political dramas, and the grand finale... earnings season! Big company news can send shivers down investors' spines, making volatility your dance partner for a wild night. That's why it matters – it's the risk meter for your precious portfolio. Think of our Equity Strength Signal's red flag during high volatility as a warning from your trading sensei – brace yourself, things might get spicy!
To track this passionate dance, we rely on the CBOE Volatility Index, the VIX. Some call it the "fear index," but that's like judging a tango only by the nervous energy. The VIX measures the heartbeat of the S&P 500 options market, but at Equity Strength, we focus on the smaller companies, the Russell 2000. They're closer to the true pulse of the economy, less swayed by the graceful glides of passive investors.
Here's the secret step: the VIX keeps tabs on put options, those contracts whispering, "Honey, things might get messy." When investors get jittery, they buy more puts, pushing their prices (and the VIX) higher. But when optimism shines, puts gather dust, prices fall, and the VIX chills with a mojito.
Now, the magic moment: volatility plays puppeteer with option prices. Higher volatility makes them pricier, like a fancy tango lesson compared to a free street corner swing. They become your insurance premiums for those daring market bets. But low volatility? Those options are on sale, a bargain bin paradise for savvy traders.
Remember, 20 is the "Goldilocks" VIX, not too hot, not too cold. Right now, it's slumbering at 13, but earnings season might wake it up with a tango tantrum. That's why we keep a hawk eye on the VIX, ready to dodge any unexpected dips (or maybe join the passionate embrace, if opportunity knocks).
So, fellow traders, let's embrace volatility, not fear it. It's not a monster, but a powerful partner in the trading tango. With the right knowledge and a sprinkle of risk management, we can turn its wild energy into our next profitable dance step.
Sandra Stone Benzinga Contributor has a professional discord service providing beginner and advanced traders with daily live trading sessions, trade alerts for day, futures, and swing trades. Alerts also sent by Text Messages. Custom trade indicators and trader tools like options flow and Gamma. She provides education and coaching.
Sandra can be reached on her website, TradingMadeSimple.org, and on X. She can also be reached by phone at 714-202-7361 every trading day.
This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
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