Options Market and Volatility Affected by the EU

The European Union (EU) continues to drive volatility in the market. Don’t expect it to end any time soon. The following 5 minute video gives an overview of how it’s affecting the options market.

The Top Gun Options trading team sees Wall Street on edge, reacting to every pronouncement out of Europe with the same reflex action that a doctor gets when he taps his hammer against a patient’s knee. And, if the recent European Union (EU) headlines are any indication, this indecisive mood won’t be ending any time soon.

This week’s market action so far has been a microcosm of the last three months, when 200-plus point gains quickly get countered or exceeded by extreme downward moves. Wednesday’s 178-point gain in the Dow Jones Industrial Average (DJIA) was dwarfed by the losses the Blue-Chip index suffered earlier in the week.

For the first time in three months, the EU’s debt crisis seemed to be heading toward a degree of resolution when the EU leaders emerged from last week’s summit, brandishing a deal that would provide the necessary “firepower” required to keep the PIIGS (Portugal, Italy, Ireland, Greece and Spain) from defaulting on their debts. Wall Street loved the deal, and the Dow shot up high and fast, an indication that uncertainty in the market had been reduced to a high degree.

However, like similar announcements in the past, it seems like not all the key players are on the same page. On Monday night, Greece’s Prime Minister called for a referendum on the proposed bailout, who suddenly seemed to realize that the Greek citizens who elected him were not particularly happy with all the austerity measures that would be rammed down their throats.

Not surprisingly, this shocked the markets back into fear of uncertainty, and that was the primary source of the market slamming back below its 200-day moving average, where it has spent the vast majority of the last three months.

With the EU consisting of 27 member-states, getting a consensus among the leaders is a difficult, if not impossible, task. Ratcheting up the degree of difficulty is the fact that, as seen by the example in Greece, deals made by the EU leaders may come tumbling down if and when they get booted by the people who put them in power to begin with.

See TheStreet.com for the entire article

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