4 replies to this topic

[ogm]

Ok, there is a lot of depressing discussion this weekend ab out the looming end of the world.

Now, lets get back to the stuff at hand. Are we close to a rally or not ? I posted the XLF chart that is looking very oversold.. now Put/Call.

Looks like we're almost there too.

Edited by ogm, 05 August 2007 - 07:02 PM.

[emdee]

Hi ogm,

Here is a look from SC.com of the SPX compared to the 10 dma of the total PC ratio (PC value is invisible). Notice that this type of spike has signaled a bottom during much of the bull market, but not always as witnessed in summer 2006.

http://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=4&mn=0&dy=0&i=t63019765902&r=98.png

[ogm]

Ultimately it did signal a major bottom, just not "the very bottom". It did signal that the fear was rising fast. And thats what we have right now too. The fear is rising very fast.

[mortiz]

DP and SC report the CBOE options data, which these days account for just under 28% of the total equity options volume (CBOE still has the lion's share of index options volume).

The Options Clearing Corp. (OCC) covers the equity options volume for all six options exchanges, but unlike the CBOE, the OCC includes ETF options volume in their equity options data. The OCC daily data available to the average Joe Six Pack like me, only goes back to 2002. Below is a chart of the OCC "all exchange" equity PC ratio presented as a 10 day moving average. The call and put volume for SPY, IWM, and QQQQ (the highest volume ETFs) have been subtracted out of this data since the options volume for all three of the ETFs are normally heavily skewed toward puts.

The 10 day all exchange equity options PC ratio is currently at 0.87, still well below the March 2007 high, but creeping up on the previous high posted in late June 2002. After Monday's action, this indicator will likely exceed 0.90 due to a low PC value from ten days ago evaporating. Normally, before declaring a buy signal, one would like to see this PC ratio roll over since their peaks rarely coincide with price lows.



The OCC also publishes weekly equity options data which goes a step further by posting the Buy-To-Open (BTO) put and call volume. The next chart is the weekly BTO equity PC ratio for retail transactions of more than 50 contracts, i.e. the large retail players. This group is often right when price tops are posted (their put buying increases going into price highs), but this group also gets caught with their pants/skirts around their ankles by being very heavily short at price lows.... and they appear to be getting there.



The big fly in the bull's ointment over the past few weeks is the smallest retail equity option traders' (10 or less contracts per transaction) BTO PC ratio, which remained at a relatively low level until last week, when a little bit of fear finally surfaced with this group.... although the smallest retail customer BTO PC ratio is still not at the level normally associated with important price bottoms. So there may be more pain for the bulls, although this PC ratio normally tops out a couple weeks after price bottoms, due to the small traders loading up on puts at lower premiums while prices rise from their lows in anticipation of another pluge south.



The liquidity premiums and daily shorting data are both getting overdone, approaching territory normally associated with price lows... so with the Fed meeting and WWW due around mid-week, this could get interesting.

FWIW

Randy N.

[ogm]

Mortiz, great charts, thanks for posting. Looking at the first chart, the conclusion comes to mind that the options market is experiencing levels of anxiety and intensity that were associated with the 2002 market bottom ( And those were some intense times ) Except for the smallest option traders. But, I think a lot of retail options traders are now playing a lot of QQQQ/SPY options. I wonder if it was possible to filter out the small players BTO transactions for those options. Either way, great charts and analysis.

Edited by ogm, 05 August 2007 - 08:29 PM.