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My experience with the 1.54 and 0.99 levels mentioned below has been to
"unoptimize" them. In order to get the 85% to 90% accuracy many very good
trades are missed. Laying a plot of the OEX P/C ratio up against the OEX,
and noting when the OEX makes a trend change suggests some modification to
increase returns. One is to drop the 1.54 to 1.48 and use that level as a
Buy Alert and not a "buy the next morning". Then use an indicator such as
Bill Blau's Stochastic Momentum, that is a very good representation of
price trend, to trigger the actual trade. Or use your favorite price
oscillator. The key is to use the P/C ratio as the "arming" or filtering
of the trigger and then use the oscillator to pull the trigger. This holds
true for the 0.99 level too. 0.99 is a good Sell Alert level as is, but
again it may be a few days before puts should be bought. In the posted
system below, the mechanical nature says to buy puts on the next day's
open. The two problems I have with that is, one, the open is an expensive
time to buy puts, because you are not likely to get filled until the market
makers have adjusted premium to reflect the opening of the constituent
stocks and you will most likely be paying up for the puts right at S1 or
S1A on the OEX pivots. That can be a far cry from what it was on the close
of the day before. What I have experienced with the discretionary
modification is that it may be up to two or three days before the actual
buy or sell triggers are pulled. So modifying the system to include an
"Alert" level for filtering and an oscillator trigger for trade activation
will put your trading more in tune with profits.
BobR
http://www.oextrader.com
At 06:21 PM 12/18/97 EST, TRaffertu wrote:
>In a message dated 97-12-18 16:06:09 EST, you write:
>
><< How do you calculate your P/C ratios. AE you using OEX option data or
> equity options >>
>
> Hi James,
>
> You may already have an answer from Bob, but in case he didn't
receive
>your question you use the OEX option data available from
>http://www.cboe.com/
>
> You can sign up for a free e-mail service that sends the data to you
>each day. You have to calculate the put/call ratio yourself from the OEX
>data. Be carefull to check that the puts + calls = total shown, they
>ocassionaly make errors.
>
> The indicator (often called the Kallaus Indicator for Kurt Kallaus,
>the fellow who first noticed it and posted it here Sunnen@xxxxxxx (kurt
>kallaus) rules are if P/C ratio >= 1.54 buy the S & P (or mini) on next
>morning open. If P/C ratio is <= 0.99 sell the same. Signal last for two
days
>with an exit on the open exactly 2 days after entry.
>
> Do not take a sell signal after a down day of 1% or more or a buy
>signal after a 1% or greater up day (on the S & P).
>
> I think he found a 10 point stop and a two-thirds retracement
>profit stop after a 1%+ profit improved performance.
>
> He showed an 85 to 90 % accuracy record for this indicator, but
>admitted he used more than one indicatior for his trading.
>
> As you can imagine, it is very easy to chart this indicator (graph
>paper works) but you have to calculate the OEX P/C ratio since no symbol
>exists to download it. I Hope this helpes.
>
> Good luck and good trading,
> Ray Raffurty
>
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