Volatility Index S&P 500 Options - VIX at 23.20; 10-day moving average is 20.92

Volatility Index NASDAQ 100 - VXN at 26.26; 10-day moving average is 25.24

NASDAQ 100-QQQQ overall option Implied Volatility at 26; 26-week average is 24

Semiconductor Holders Trust - SMH option implied Volatility 27; 26-week average is 23

IShares Russell 2000 - IWM option implied volatility at 28; 26-week average is 24

Amex Financial Select Sector - XLF implied volatility at 33; 26-week average is 23

ISE Sentiment Index-ISEE 144 new Calls purchased for every new Put on 11/1/07. ISEE 10-day moving average is 138. ISEE 50-day moving average is 133.

November front month Equity Options expire; 11/16/07

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Volatility Index S&P 500 Options-VIX at 27.37; 10-day moving average is 24.62

Volatility Index NASDAQ 100-VXN at 29.94; 10-day moving average is 25.95

NASDAQ 100 (NASDAQ: QQQQ) overall option Implied Volatility at 26; 26-week average is 21

Semiconductor Holders Trust (AMEX: SMH) option implied Volatility 27; 26-week average is 23

IShares Russell 2000 (NYSE: IWM) option implied volatility at 30, 26-week average is 22

Amex Financial Select Sector (AMEX: XLF) implied volatility at 30; 26-week average is 22

ISE Sentiment Index-ISEE 90 new Calls purchased for every new Put on 9/10/07. ISEE 10-day moving average is 122. ISEE 50-day moving average is 123.

September front month Equity Options expire; 9/21/07

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

As a result of the growth of exchange-traded funds (ETFs), volume in certain smaller stocks has spiked disproportionately. This is due to the fact that, when money flows in and out of ETFs, funds are forced to buy and sell the holdings proportionately. Consequently, more money flows in and out of ETFs than mutual funds because they are so easy to trade (bought and sold through any broker at any time during the day), so ETFs have had a much larger impact on small company stock prices and volumes than mutual funds have had historically. According to a Wall Street Journal (subscription required) piece on this issue, when the markets fell during late February, "Between Feb. 22 and Feb. 28, just one ETF, the iShares Russell 2000, reported outflows of $2 billion, whereas major small-stock mutual funds combined had outflows of only $101 million, according to AMG Data Services." (emphasis mine)

While this is seemingly insignificant beyond the obvious (price and volume increases in some index-held small-cap companies), when you consider the implications of a volume spike, the issue becomes more important. Many technicians (people who trade stocks based on their price and volume patterns) use volume as an indicator of "special knowledge." However, ETF buying is certainly not special knowledge, and it is actually the direct opposite -- "insensitive buying." As a result, one must certainly question the validity of volume spikes as a method of choosing stocks with smaller market capitalizations if they previously had any confidence in the methods of technical analysis.