Bearshark, generally it is regarded as bullish when put open interest on index options is perceptibly greater than call o.i. (say 30% or more). or let me rather put it this way: it is bearish, when this is not the case. the rule doesn't hold for individual equity options due to the popularity of covered call writing; also, index options are the instrument of choice for hedging strategies. sometimes, large index put o.i. can have a negative effect: if, due to an unforeseeable event, the market panics and sells off sharply, the put writers are forced to short the underlying basket of shares to hedge their exposure, thus putting even more pressure on prices. this is the dilemma currently faced by the bond market, which has already seen exacerbated selling when the 116 strike in the september futures contract was broken to the downside. we can only hope that the 114 strike will not suffer a similar fate. in a normal market, it pays to pay attention to the distribution of o.i. across various strikes to get a feel as to where the underlying instrument will likely end up come expiration (max-pain point). whenever strikes with large o.i. are broken, either to the upside in the case of calls or downside in the case of puts, the move becomes more significant, as overhead resistance (or support) is eliminated.
regards,
hb |
