5 replies to this topic

[NAV]

There was some talk about high SPX P/C ratio and why it was responsible for the decline. I somehow don't subscribe to that thesis. SPX option folks are mostly hedgers and not speculators. Well, it's a fact that we had a sizeable decline with that high P/C ratio. Now yesterday, we had a high SPX P/C of above 3.0 consistently from start to close and yet the market rallied non stop. What were the smart specualtors (OEX and DOW option folks) doing ? - buying calls. The OEX P/C ratio has dropped to about 1.28, which means they are betting on the upside. Now if get a huge decline on friday, then the SPX folks are right. On the other hand, if the market moves higher, then OEX folks are right. History has shown that the OEX folks tend to be more right than wrong. Staying long 2/3rd of my QQQQ calls. Expecting new recovery highs on all indices in the next 3-4 trading sessions.

[Tor]

Thats my current thinking (5th up, please see mypost below). Staying alert to a trend change however. Good trading.

[OEXCHAOS]

There was some talk about high SPX P/C ratio and why it was responsible for the decline.

NAV, my observation is that some smart money was positioning short in the SPX and other indices right before. I defined "smart" as buying lots of puts and not paying up for them (and being right, the last time this pattern emerged). My theory is that big smart money knew that they'd be liquidating, or that someone would. I think a lot of those guys manufacture moves and either hedge them fully or profit from them.

One key to getting more insight into the options is to look at the OEX and other index options, AND their $-weighted P/C's. There's some gold there and every so often you can see the footprints of smart money.

I somehow don't subscribe to that thesis. SPX option folks are mostly hedgers and not speculators. Well, it's a fact that we had a sizeable decline with that high P/C ratio. Now yesterday, we had a high SPX P/C of above 3.0 consistently from start to close and yet the market rallied non stop. What were the smart specualtors (OEX and DOW option folks) doing ? - buying calls. The OEX P/C ratio has dropped to about 1.28, which means they are betting on the upside. Now if get a huge decline on friday, then the SPX folks are right. On the other hand, if the market moves higher, then OEX folks are right. History has shown that the OEX folks tend to be more right than wrong.

Totally agree on the OEX nominal P/C. When the $-weighted is very low, however, it's often an early warning sign.

Also, for your info,
SPX nominal P/C 2.62 $-weighted P/C 1.54

[NAV]

There was some talk about high SPX P/C ratio and why it was responsible for the decline.

NAV, my observation is that some smart money was positioning short in the SPX and other indices right before. I defined "smart" as buying lots of puts and not paying up for them (and being right, the last time this pattern emerged). My theory is that big smart money knew that they'd be liquidating, or that someone would. I think a lot of those guys manufacture moves and either hedge them fully or profit from them.

Mark,

After watching the WWW (Weird wollie Wed) for the last couple of years, i have no doubts that the option folks can control the game to a certain extent. I am not disagreeing with you on that. But the SPX P/C from my observation does not have a good track record of calling turns (compared to its cousin OEX), although i admit that i have not done a systematic study on that. Maybe someone can post a chart of SPX vs SPX P/C, which can throw more light into this area.

Edited by NAV, 22 June 2007 - 06:26 AM.

[spielchekr]

[NAV]

Thanks speilchkr.