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----- Original Message -----
From: "BobR" <bobrabcd@xxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Tuesday, May 15, 2001 10:32 AM
Subject: [RT] Mkt - general
> Wow, the sentiment towards stocks with options traded at the cboe are
quite
> bearish with their $c/($c+$P) having dropped to what is often a contrary
buy
> level.
>
> bobr,
My volume related option sentiment numbers are just about dead neutral.
Since the indicator you are looking at is price related, the put call
relationship is greatly influenced by interest rates, is there
any adjustment for an anticipated interest rate move in this data?
Here is why. Lower interest rates make the short stock conversion less
desirable, i.e. part of the equation for conversions is that the money that
market makers are paid on their short stock balances, which is a percentage
of the stock loan "box". (If you are a big stock trader and have short stock
positions, you should be getting some of ths juice too. The brokerage houses
rip off the public by keeping all of this money and then have the chutzpah
to charge the customers interest on a position on which the house is making
money.) . As interests drop, this short stock rebate amount shrinks and
means market makers will pay less for calls and need to receive more for the
put premiums they write. This means there should be a shift in relative
premiums in favor of puts over calls. This is also true from the point of
view of the long stock position, as the cost of carry will drop therefore
making a lower call premium balance the equation. Keep in mind the opposite
during rising interest rates.
Thanks for bringing this to my attention.
Here is a parodical piece of apropos song lyric for the occasion:
Delta Dawn, what's that spread you got on
could it be a position from days gone by?
And did I hear you say, you'll be taking it off today
and headin' for that clearing firm in the sky?
Delta-ingly,
Norman
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