How to Use Options Like Market 'Tea Leaves'

Market volatility making you nervous? Here's one way to understand the market reactions.
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You don't need to go to a fortune teller to get a glimpse into the future. 

So, how can investors take a look at how the market will move?

"Options are this growing vehicle. You know, 20 years ago options were kind of obscure. The volume wasn't there, but the options market has grown so much over the last 20, even the last 10 years," explained Jay Pestrichelli, co-founder of ZEGA Financial. "Um, it's exponential. And so now options can be used as a way of managing your risk, but you can also use them as an ability, your ability to read the tea leaves of what's going on in the, in the stock market. So we like to say that the options money is the sophisticated money and you're able to glean insights as to what's going to happen in a stock or the stock market based off of the options market because those are sophisticated, you know, positions that are typically directionally based. So for example, we've all heard of the VIX, we've all heard of volatility. It's becoming more popular. That is an options index can actually own it."

But options aren't the only think that Pestrichelli explained. He also broke down hedging and gave an example of how hedging can work in the form of Facebook (FB) - Get Report

Related. Don't Go Full Bear Just Because Pundits Are Predicting Disaster Again

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