Markets Rebound Sharply - Sensex Up 197 Points!

The markets continue to confound everyone. The roller coaster of a ride continues. Today the markets rallied sharply more than covering yesterdays drastic down move. In a sense the markets are living up to the parable of Mr. Market put forward by the legendary father of "Value Investing" school of thought Benjamin Graham.

The parable goes something like this.
"Think of yourself as owning a share in a business in partners with others. One of your partners, say Mr Market, is somewhat of a neurotic who on any given day will offer to buy your share or sell you his at a specific price. His moods can fluctuate anywhere between incredible optimism and overwhelming depression. One day he will nominate a higher price to buy or sell, the next day he might increase it, lower it, or even appear uninterested in whether he buys or sells.

The point that Graham makes is that Mr Market’s judgment is formed more by mood swings that by rational thought and that this gives the wise investor buying and selling opportunities. If Mr Market’s price is unreasonably high, then wise investors have the opportunity to sell. On the other hand, if it is unreasonably low, then they have the opportunity to buy."

Luckily for us option traders, we do not have to panic at every rash up or down ride of the roller coaster that the markets have become. We have the flexibility to plan our trade and optimise it to the situation. We do not have to panic for every movement the market makes.

One of the benefits of careful and learned options trading is we can relax with our trade. We can plan our risk and loss taking ability before hand, and not let our emotions get in the way when the markets panic.

Keep a clear head and profit away.