There’s talk of a volatility explosion Tuesday morning. What’s going on?
Essentially Pete Najarian is concerned that investors are holding much less put protection in their portfolios than they were just one day ago - and that could send the market lower. Here's why.
Friday January 18th was an expirations day in the options market and consequently, January options aren’t available anymore – they’ve expired.
For whatever reason, traders haven’t purchased nearly as many “puts” (a bet a stock will move lower) or “calls” (a bet a stock will move higher) for February, March or the outlying months.
What concerns Pete is the lack of “put” buying because if there are now fewer “puts” on the downside – protection isn't as prevalent. (Remember some institutional investors will buy stock and puts together. That way they benefit if share price moves higher and they also hedge their losses if it moves lower.)
That could mean we're set up for the perfect storm Tuesday, according to Najarian. "With less put protection, negative news could spark fear more easily and send stocks down fast and sharply,” he concludes.
> Find out where Pete’s brother Jon Najarian sees unusual options action in “Playing The Financial Free-Fall”