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Options guy: Cheap protection for a December drop

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

The S&P 500 was essentially unchanged week over week. If that was all we were looking at, one might think very little is going on.

However, intraday swings on Wednesday, Thursday and Friday reveal a great deal of uncertainty. On Wednesday, the market fell over 1 percent off the highs. On Thursday, the market's swing was over 2 percent between the high and the lows and on Friday the market had a swing of over 2 percent between the lows in the morning and the highs in the afternoon.

Traders pay close attention to volatility. It is one of the primary determinants of an option's value.

Options traders aren't the only ones who should be paying attention when broad market indexes start moving around sharply. Here are a few reasons why.