THIS WEEK’S ISSUE:

* In-Play: $700 Billion Bailout – Deal Reached!
* In-Play: Short-Sellers Report Holdings
* In-Play: Citigroup (C) & Wells Fargo (WFC) Bid for Wachovia (WB)
* Market Commentary: DJIA, S&P 500
* Update: CBOE Volatility Index (VIX)
* Update: NYSE & NASDAQ Hew Highs-New Lows Index (NYHL, NAHL)
* This Week’s Economic & Earnings Reports

Now that the low-volume summer blahs are (probably) over, maybe we’ll see some genuine premium hitting the options boards for the rest of the year, rather than being concentrated only in energy and commodities. So we wondered, would there be any edge in taking directional trades based solely on extreme volatility readings? Or more precisely:

In a perfect world the value of standardized futures on deliverable assets is determined via arbitrage argument, or FP = SP*(1+RF)^t.

Bloggers are calling for a bottom; but can we have one without fear?

For those that do not know what that means, it means that it is time to raise cash by selling down some of our longs. We recently have gone long quite a few stocks that have performed very well. Some of you made the right decision and took a lot of profits when some were up 20% to 50%. That was very smart.

Find out how you can trade volatility directly using VIX options!

Learn what the VIX is and how you can read the VIX and use it for your options trading!

Yes, yes it is.

General Electric (GE) reported earnings this morning, missing analysts estimates by 7 cents (44 v. 51 estimate). While an estimate miss is never great, lowering yearly estimates can be a sign of slower times. In this case, with GE being the 4th largest, multi-faceted company, any reduction in estimates can be described as a general weakening of the economy.

Some volatility-related items of note, ranging from the obvious to the esoteric, in that order.

As many of you know, the major indices are at a pivotal, well …pivot. The SPY, IWM and others are in a position to retest the swing lows set in January 08.

I won’t be the first to say it, but certainly won’t be the last… it may be time to get long.

As you might expect, the rally of the past two days has pushed the VIX down quite a bit. As the VIX daily chart shows, the index is today pushing against the lower edge of its Bollinger band, and just a hair off its 200 DMA.

The Thesis

You might say that the three key components of any options trade are time, price and volatility. That is to say: the time left until those options expire, the price of the underlying, and the volatility implied in the options prices. It’s easy to forget that last component, and sometimes people don’t take implied volatility into consideration when opening trades.