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Trading The Volatility

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News of the Bear Stearns buy-out sent volatility into the stratosphere. How do you play it?

We saw a spike in the volatility index to 36 on Monday, explains Pete Najarian on CNBC's "Closing Bell". I’ve been looking for that kind of surge. To me it suggests that the worst could be over. I also liked seeing that, as the day went on, stocks turned more and more positive. Even financials bounced off their lows.

It suggests to me that the Fed will do whatever needs to be done to make sure this de-leveraging process happens in an orderly process, adds Joe Terranova.

How do you trade?

If you’ve been long gold, crude oil or most other commodities over the last quarter I think you should pare down your position, counsels Terranova. When market conditions get to this point it’s important to take a fresh look at what you have.

What are you expecting from the markets on Tuesday after the Fed meeting?

If the Fed cuts I think the market will pop, speculates Pete Najarian.

I would be more comfortable owning less ahead of Bernanke’s message, but overall I recommend being long.

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