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Truly excellent ideas. I'll tell you one big challenge whenever you have to
autopilot a calculation is that you cannot take the time to analyze the
trading and say I will include this or leave this out. The indicator would
broadcast over OPRA just like an option quote with (yet to be determined)
updating .... probably either 6 or 12 times a minute. It also would need to
be SEC approved and they go nuts unless any "tinkering" can be done without
a judgement call.
The volume issue is pretty clear and as I said in the original query we
would like to include volume. We would also like to filter and make the
indicator customer orders only ...... both of these issues present some
technical challenges.
The issues of rolls is also a really good point. When I worked on VIX at
the CBOE we simply excluded expiration week data. here at the ISE we don't
have much of a roll business yet, but as we're the only ones to have
automated spread training we do some now and will do more as time passes and
more people automate.
Thanks,
-----Original Message-----
From: CalaxCorp@xxxxxxx [mailto:CalaxCorp@xxxxxxx]
Sent: Friday, January 25, 2002 1:36 AM
To: realtraders@xxxxxxxxxxxxxxx; AJacobson@xxxxxxxxxxxxxx;
detomps@xxxxxxxxxxx
Subject: Re: [RT] Option Sentiment Indicator
Alex:
That's a great idea to compose a sentiment index based on bullish or bearish
option transactions.
I agree with DonT that without volume, the result would be misleading. I
would like to go even a few steps further. Here are the points I want to
inject:
1. Volume should not be based on number of completed orders as you proposed,
like DonT said.
2. Volume should not be Open Interest either. Obviously.
3. And not the number of contracts traded either, because a bunch of way-OTM
contracts can be bought with just a few dollars.
4. A good measurement can be based on the dollar amount people are willing
to buy or sell the options at. In other words, the Dollar Weighted
measurement. A "$ weighted put/call ratio". Based on money spent on
bullish transactions compared to bearish transactions.
Dollar weighted measurement would take care of your concern of market cap
issues.
5. If there is a way your computer can be programmed to exclude the block
trades associated with option roll overs (near expiration), it would make
the index much more accurate.
6. Same if you could screen out the Ex-dividend option plays.
7. Because the index is most likely used as a short-term indicator, to
improve the accuracy even more, consider assigning more weight to the nearby
month options, to compensate the extra money people have to spend on the
LEAPS, etc., So this weighing should be tied to a function of
time-till-expiration and interest rates(?)
Thank you for your thinking about providing that info at your ISE in the
future. I am looking forward to having it. There is no other publicly
available info like that out there at this time. The closest I get is from
www.HamzeiAnalytics.com. I am a happy customer there.
Bill W
....
From: Don Thompson [mailto:detomps@xxxxxxxxxxx]
ok... If that is your judgement based on your research and experience then
you will
stake your reputation on it. I know you have been in the options field for
a long time
and pretty much know how it works.
I am just thinking about MP, although the reportage technology has changed,
I know that just a transaction based
distribution of price is not exact mirror of an exact volume based
distribution. It is close..... :) but
a squatter normal curve based on transaction volume only on a given day is
much different than a
volume based curve, that might show more weight in the center of its normal
curve.
Don Thompson
----- Original Message -----
From: "Jacobson, Alex" <AJacobson@xxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, January 24, 2002 10:59 AM
Subject: RE: [RT] Option Sentiment Indicator
> It wasn't at all material.
>
> -----Original Message-----
> From: Don Thompson [mailto:detomps@xxxxxxxxxxx]
> Sent: Thursday, January 24, 2002 10:58 AM
> To: realtraders@xxxxxxxxxxxxxxx
> Subject: Re: [RT] Option Sentiment Indicator
>
> Alex,
> The key issue is ... "it really very Rarely Changes"
> you might know that, and other academics might know that, but
> when it does change then that is saying something...
> Don Thompson
> ----- Original Message -----
> From: "Jacobson, Alex" <AJacobson@xxxxxxxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Thursday, January 24, 2002 10:52 AM
> Subject: RE: [RT] Option Sentiment Indicator
>
>
> > In our studies if we volume weight it .. it really very rarely changes.
> > Having said that it still hasn't been decided.
> >
Subj:Re: [RT] Option Sentiment Indicator
Date:1/24/02 7:49:40 AM Pacific Standard Time
From: detomps@xxxxxxxxxxx <mailto:detomps@xxxxxxxxxxx>
Reply-to: realtraders@xxxxxxxxxxxxxxx <mailto:realtraders@xxxxxxxxxxxxxxx>
To: realtraders@xxxxxxxxxxxxxxx <mailto:realtraders@xxxxxxxxxxxxxxx>
Alex,
If you don't consider volume in the index. Don't even bother publishing the
index. You will just be misleading
alot of individuals. That might be ISE's intent, I don't know. I would just
as soon see ISE not publish it if they can't
be honest enough to publish the index with volume.
Best Regards,
Don Thompson
----- Original Message -----
From: "Jacobson, Alex" <AJacobson@xxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, January 24, 2002 10:32 AM
Subject: [RT] Option Sentiment Indicator
> Hey list .. I'd like your input on a proposed new sentiment indicator.
>
> Here at the ISE all of our orderflow is electronic .... retail,
> institutional, professional ... it's all electronic. What we are thinking
> about doing is taking periodic snapshots (maybe every 10 seconds) of our
> completed orderflow. Orders to buy calls or sell puts would be considered
> bullish and orders to buy puts and sell calls would be considered bearish.
> The data may or may not be weighted by the size of the orders .. too early
> to tell. Some folks have suggested weighting the data based on most
active
> issues as well.
>
> In effect if in the 10 second window we completed 500 bullish orders and
400
> bearish orders the indicator would be 1.25 .... again scale issues are yet
> to be worked out. Zero numbers would a problem and we are working out
some
> thoughts on that. It has never occurred, but it is not impossible.
>
> In effect this would create a pseudo tiki type indicator based on option
> orders completed ....... tiki has some advantages because of market cap
> issues.
>
> I'd appreciate hearing your comments.
>
> Alex Jacobson
> Vice President Business Development
> I S E
> 212 897 8125
> 212 425 4926 (FAX)
> 877 7209918 (SKYPAGE)
> ajacobson@xxxxxxxxxxxxxx
>
>
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