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TheStreet Open House

Quick Take: More Than Just Fundamentals and QE

NEW YORK ( TheStreet) -- TheStreet's Jill Malandrino talked to Mark Sebastian, COO of Option Pit, on Tuesday about the volatile moves in the market following last week's Federal Open Markets Committee meeting, and how investors may want to position their portfolios going forward.

Malandrino pointed out that while the next trend remains to be seen, one thing is for certain: Volatility is here to stay. This is especially true with the violent swings in other asset classes around the world and central bank headlines that can throw global markets into a panic at any time.

Sebastian, who nailed the upward move in the CBOE Volatility Index, or VIX, noted that things have finally started to calm down a bit. Most notably, 10-year Treasury notes have finally stabilized after collapsing over several previous trading sessions.

Had the plummet continued, we may have experienced a selloff where traders are forced to sell their winning trades to stop the bleeding on their losing positions, he said. This would have also been very bad for equities and would have likely sent ripples across multiple markets.

Sebastian added that we are going to need a very solid earnings season if investors want to see the market make another leg higher; 1,650 to 1,700 is not out of the picture in the S&P 500 if we do get solid corporate results.

Malandrino wanted to know the best way for investors to protect their portfolios. Sebastian had a simple strategy using options: collars.

Using collars, which is the practice of selling upward calls against a position while simultaneously buying downward puts, usually results in very little premium either being paid or collected if using roughly equal distanced strike prices.

The strategy works well after large moves to the upside, as we had recently experienced in the markets, he explained, because it allows for slightly more profit should the upside move continue but locks in most of the gains should investors experience a sharp downward fall.

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Rocco Pendola's Weekly Options Newsletter. Focuses on short- to intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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