〽️ Stock Market Starts Post Summer with Volatile Decline 〽️

5 min read

Dear traders,

major declines have taken place in the stock market right after record gains were recorded. Is the stock market ready for a correction or an uptrend continuation?

This article reviews the fundamentals, the SPX chart, and also the important uptick in the volatility (VIX index).

Double Digit Losses Shows the Importance of Options

The trading week had a slow start due to a public holiday (Labor day) on Monday in the U.S. Apart from being an important day for historical reasons, it is also known as the “unofficial end of summer” marking the conclusion of the summer season. 

Interestingly enough, last Friday the market started to reverse its direction. After recording new all-time-highs on a daily basis for several days in a row, two major indexes like NASDAQ and S&P 500 lost about 7% and 11.2% respectively in just 3 days. 

Despite after the impressive bull run a retracement was expected, this is a typical situation in which a downside protection is very important for protecting our long positions.

50 MA Support and the Return of Volatility

The SPX is now approaching from the top the 50 days moving average that could behave as a support as it did in the past. If this will be the case, the expected injection of relevant amounts of capital could result in a strong upward bounce of the index. The main reason could be that there are still plenty of market participants waiting for good opportunities.

However, for the moment, volatility is back on the scene. During the last three days the volatility index (VIX) increased its value by more than 45% going back the important level of 25 that acted several times in the past as a support.

As options traders, we can take advantage from high volatility periods through specific strategies characterized by the fact that we are now more interested in wearing the sellers clothes, collecting thus a credit with high probability of profit, rather than those of buyers. The reason is simple: volatility has an impact on the options premium; in detail, the higher the volatility, the higher the options premium.

How to Start with Options!

Thinking about options but not sure yet? There are a couple of ways to move forward before committing to the course or educational signal service. Here is how you can stay in touch:

If you are ready to move forward, then you can choose from:

Good trading,
Marco Doni – ecs.OPTIONS expert and CNBC contributor

The articles are not intended to give any advice on how to invest money, they are just for educational purposes.

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