Here is a rear view mirror look at something that may also be useful -- option sentiment.
Momentum players bet against biotech
By Stephanie O'Brien, CBS MarketWatch
Last Update: 12:07 PM ET Feb 1, 2000
NEW YORK (CBS.MW) -- While biotechnology stocks have caught the public's fancy lately, some investors who follow the momentum of investor sentiment are betting that the sector's rally will soon end.
The Amex Biotechnology Index rose 47 percent between December 21 and January 21. Genomics stocks have been particularly hot, with names such as Human Genome Sciences (HGSI), Celera (CRA), Affymetrix (AFFX). Millennium Pharmaceuticals (MLNM) and CuraGen(CRGN) among others.
Others such as Amgen (AMGN),Biogen (BGEN), Chiron (CHIR)
and Genzyme (GENZ) have also risen sharply in recent months.
Some investors are wagering that the trend is about
to shift, according to Joe Sunderman, director of
research and development at Optionsource.com.
Optionsource measures investor sentiment by
looking at options activity.
"Options players are betting that these stocks are
going to go down," Sunderman said Friday.
Sunderman tracks the open interest, or the number of options contracts outstanding. Investors buy put options, contracts that guarantee the right to sell a specified number of shares by a certain date, when they believe a stock will go down. An increased amount of activity typically signals bearishness.
"There is a high amount of puts relative to calls," Sunderman says."(Momentum players) are looking for a downside move. They think the biotech rally has been overextended."
Sunderman looks at options activity to determine
sentiment. "We would tend to think the rally is
short-lived," Sunderman says.
Volume in pharmaceutical stocks was also notable, although those options trades pointed toward a bullish trend, Sunderman said.
Last Friday, for example, while the broader market declined, see Market Snapshot and Bond Report, Merck (MRK), Johnson &
Johnson (JNJ) and Bristol-Myers Squibb (BMY) all had options call volume that was atypical, Sunderman said.
"Call volume was overwhelmingly stronger than put volume," he said. "At face value that would suggest options players are bullish on pharmaceuticals stocks," Sunderman said.
So how does Optionsource see that trend? "We take the contrarian view," Sunderman says. "A herd mentality will move things swiftly in either direction."
Nonetheless, he cautions, "Many options players, looking to make a quick buck, are often wrong." |
