Market Volatility: Bank Worries Strike Again (2024)

FAQs

Market Volatility: Bank Worries Strike Again? ›

What our experts think about today's market action. U.S. stocks fell again Wednesday, with the Dow Jones Industrial Average touching its lowest level in over four months, as concerns over the banking sector spread to Swiss lender Credit Suisse.

Volatile markets are commonly attributed to things such as economic releases, company news, the opinion of well-known stock analysts or unexpected earnings results.

Volatility halts are single stock circuit breaker halts that trigger 5-minute halts on fast price spikes or drops that exceed the acceptable trading price range (ATPR) for 15-seconds. The ATPR is calculated as the average price of the previous 5-minute trading period. Different stocks have different ATPR ranges.

Volatility is how much and how quickly prices move over a given span of time. In the stock market, increased volatility is often a sign of fear and uncertainty among investors. This is why the VIX volatility index is sometimes called the “fear index.”

Increased volatility often happens during periods of economic stress, like a recession. It can be caused by economic or policy factors, including interest rate changes and inflation. Political instability can also cause market volatility, as can global events, like a pandemic or a war.

Derivative contracts can be used to build strategies to profit from volatility. Straddle and strangle options positions, volatility index options, and futures can be used to make a profit from volatility.

Volatility and Market Fluctuation

While a highly volatile stock may be a more anxiety-producing choice for this kind of strategy, a small amount of volatility can actually mean greater profits.

Money that you'll need soon or that you can't afford to lose shouldn't be in the stock market—it's best invested in relatively stable assets, such as money market funds, certificates of deposit (CDs), or Treasury bills.

What is the best strategy for a volatile market? ›

Because volatile markets can lead to swings both upwards and downwards as prices gyrate, buying a straddle or a strangle are popular strategies. These both involve simultaneously buying a call and a put on the same underlying and for the same expiration.

My advice is to take slow, steady and calculated risks. Don't buy a stock because it's cheap. Buy it because it is a good company. Or look to invest in the market as a whole with an index fund.

Another key driver of volatility is liquidity. The more traders and investors on the market, willing to buy and sell an asset, the less likely it is that a single transaction will cause a large price move. So, less liquid markets are usually more volatile as prices can change drastically.

Even so, the gains posted by Ambrx Biopharma (AMAM) in Friday's session are unusual and particularly eye-catching. The stock soared to the tune of a hardly believable 1007% after the company announced pleasing results from the mid-stage testing of its breast cancer drug ARX788.

Stocks have a tendency to be correlated; they generally move in the same direction, especially during times of higher volatility. Investors can hedge with put options on the indexes to minimize their risk. Bear put spreads are a possible strategy to minimize risk.

The law of supply and demand holds true as in any market. Some factors, such as the rate of inflation, have the power to move the market as a whole higher or lower. Other factors, such as corporate earnings, may move a single company or an industry sector.

One of the first things one learns about bonds is that their prices increase when interest rates decline and decrease when interest rates rise. A bond's volatility depends on two factors: its coupon rate and when it will be retired (at maturity or call date).

If people are willing to substitute between the domestic currency and other currencies, then demand for the domestic currency might be affected by money supply changes. As a result, substitutability between currencies constrains monetary policy action and increases exchange rate volatility.

What makes the market go down? When demand for a stock exceeds supply, its price rises; when supply surpasses demand, the price falls. Factors like company earnings, economic data, and investor sentiment influence the supply and demand dynamics, impacting market movements.