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Technology Stocks : Intel Corporation (INTC)
INTC 39.36-0.1%Jan 5 3:59 PM EST
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To: Craig M. Newmark who wrote (95735)1/12/2000 8:04:00 AM
From: GVTucker   of 186894
 
Crag, RE: The "put/call" ratios he reports for the last several years' worth of Intel pre-earnings periods are all greater than .60. Does this mean that the market has been uniformly pessimistic about Intel's earnings for the the past 4 years? How can that be? Further, how can that ratio be taken as a simple indicator of sentiment--even put on a percentile basis relative to other stocks--given the existence of hedging strategies and other complicated plays using options?

I'm not sure if your questions are rhetorical or not. They bring up valid points.

The put/call ratio by itself would be a very bad indicator of sentiment. It is just too vulnerable to exogenous events. Think about a large institution that decides to hedge its technology stocks for whatever reason. If that institution owned 10mm shares of INTC (and a lot of them do) then that would entail the purchase of 100,000 puts, which would skew the entire put/call ratio way up, even though it was dependent on the decision of just one investor. Hardly indicative of overall sentiment.

If you want to use options for sentiment, probably the best number (but still not highly reliable) to use would be implied volatility of at the money options. The implied volatility of INTC Feb 90 puts (bid side) was 52.3 at the close yesterday, and the implied volatility of the calls was 52.2. Both numbers are well above historical norms in the 40's, which tells me that the expectation is that the stock will move a lot, but nobody knows in which direction it will move. Or, as JP Morgan said (I think) "The market will continue to fluctuate."
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