4 replies to this topic

[spielchekr]

From MarketClues: "...The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ."



From Market Harmonics:

[Tor]

From MarketClues: "...The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ."



From Market Harmonics:

This was written before the market recovered its losses on Friday. Just FWIW.

[spielchekr]

Yeah I should have mentioned that. What struck me about it was the level of bullishness it implied.

From MarketClues: "...The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ."



From Market Harmonics:

This was written before the market recovered its losses on Friday. Just FWIW.

Edited by spielchekr, 13 May 2007 - 10:50 AM.

[mbradley]

Optioneers got caught leaning for one day. Other than that, they have been wrong for this rise almost all of the up, regardless of how you look at it. As someone who looks at the options data five to ten times per day, I would say ISEE, CBOE equity only and CBOE SPXers have been continually either fading the rise, or way under invested on the long side almost the entire way up.

[thespookyone]

spielchekr -nice catch. I couldn't agree more with the author in many ways. In my mind, it is certainly an indication of the level of bullishness in the market. We can talk about opinion polls all we want-but, to me, money has allways been the final arbitor. There is an obvious hunger for risk here, probably too much, wjen people choose to plunge options after a fair dip like that, with the economic backdrop being what it is. As for it being a one day lean, that isn't exactly true, as the PC ratio was smacked to a 52 week high one day before the dip, as well. As far as the last time the options playing this way being the 2000 top, let me save a permabull posting this by posting it ahead of time: "It will be different this time" (NEVER my bet). I also feel that a market rally here without correction will change the path of what is to come-in a very severe way. To put it simply-it just isn't healthy. Up to this point, I have been very bullish toward th market, in a mid term sense,but, if we rally without correction, I believe a long term top will truly have been put in, and the drop will be much more severe. I still am of the opinion that we will correct here, and as usual, the simple things are talking to me here, like the ADX at 13-ouch. The dollar and carry trade issues also loom boldly here. Spooky

Edited by thespookyone, 13 May 2007 - 09:03 PM.