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I trade Options and think I have something worth adding to this
discussion.
Since 1987 and increasingly since Fosback's book the uses of Puts and Calls
has become more complicated than simply assuming that Puts denotes negative
market expectations (vice versa for Calls).
Styles of investment/trading these days view options as risk management
tools and positions are taken not as the buyers expectations but as the
buyer's insurance in case his real expectations don't turn out.
For example:
Buying puts for many is not an expectation of a downturn but the back
side of a trade in a portfolio of stocks or index futures where the
expectation is a
market movement up. The Puts are taken on as a hedge or low cost insurance.
So I find Put/Call ratio not easily interpreted, but the real value in
watching it may be when the trend or basing of the ratio, e.g. .9, rapidly
becomes higher, 1.5, or lower,.45. At which time the ratio is an Alert
signal requiring
further research in other indicators.
Hope there are other comments out there.
Stan Rubenstein
At 04:36 PM 10/19/97 -0700, you wrote:
>From "Stock Market Logic" 1993 by Norman G. Fosback:
>
>"Option traders lose money on balance. Their judgements of the
>direction of individual common stock prices, and of the market as a
>whole, are usually wrong. Therefore, a high Put/Call Ratio (a large
>volume of puts relative to calls) usually precedes a period of rising
>prices, not falling prices as the option speculators would prefer.
>Conversely, a low Put/Call Ratio (indicating relatively little put
>buying activity and greater call buying activity) is invariably
>followed by declining prices instead of rising prices as the
>preponderance of option buyers desire." - p.89
>
>Fosback's book is full of interesting indicators and indicator
>theories. My 1993 copy is getting a little long in the tooth though
>and I don't know if he has updated it since then. Even so, there is
>lots of interesting information to think about in the book. If anyone
>is interested, here is the ISBN: 0-79310-148-4
>
>Chip
>
>---"Charles F. Corbit III" wrote:
>>
>> Thanks Harvey,
>>
>> That was me who asked. I just started to download alot of the "not so
>> common" indices from DialData and they only give you a name, but no
>real
>> indication of what they consist of.
>>
>> Anybody happen to us Put/Call ratio or the other option based
>indicators as
>> a primary indicator or as a confirmation ? I am still real new to
>this and
>> would like to hear any comments or how theses indicators can be
>> interpreted.
>>
>> TIA,
>>
>> Charlie
>>
>> ----------
>> > From: Harvey Pearce <hpearce@xxxxxxx>
>> > To: metastock-list@xxxxxxxxxxxxx
>> > Subject: Put-Call Ratio
>> > Date: Sunday, October 19, 1997 5:46 PM
>> >
>> > There was a question yesterday concerning the put-call ratio. Since
>> > I've seen no other answers I'll chip in. Sorry I've mislaid the
>> > original message.
>> >
>> > >From "Options as a Strategic Investment" by Lawrence McMillan -
>3rd.
>> > edition, 1993.
>> > "The put-call ratio is simply the number of puts traded divided by
>the
>> > number of calls traded. It can be computed daily, weekly, or over
>any
>> > other time period. It can be computed for stock options, index
>options,
>> > or futures options. Sometimes it is computed using open interest
>> > instead of volume. If it is calculated daily, one usually averages
>> > several days worth of figures to smooth out the fluctuations."
>> >
>> > Under the heading of More Than You Wanted to Know: from "Winning
>on Wall
>> > Street" by Martin Zweig - 1990. "It was shortly after finishing my
>> > dissertation that I invented the puts/calls ratio". ... "It was
>> > gratifying to be right again, and it made me even more eager to
>write
>> > another article. The next one was on the puts/calls ratio, to
>which I
>> > referred previously. This came out in the spring of 1971, when that
>> > indicator had just turned bearish. For the next seven months the
>market
>> > went down, and again I had hit the nail on the head".
>>
>>
>
>_____________________________________________________________________
>Sent by Yahoo! Mail - http://mail.yahoo.com
>
>
>
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