Shack - FAST trading signals with P/C ratios is not the answer.
The answer, and my answer to Velo as well, is that the TURN is what is important. People stopped loading up on calls, and are now fearful and selling, a spike in the PC ratio signals more fear and probably more selling.
When all the put buying is done and the market reverses, then call buying kicks in. Call buying was huge on the way back up in September but it did not matter until call buying (and short covering reached a peak).
Plus you must look at P/C ratios in two pieces.
Equity P/C ratios and Index P/C ratios.
The powers that be want to collect both halves of the option pie by making them all go worthless. So if people are buying equity calls and hedging by buying QQQ puts, what can happen is stuff with tons of calls on it like BRCD BRCM VRTS etc falls and stuff like MSFT INTC QCOM stays strong (to prop up the index as much as possible)
If the rest of the week plays out, one would expect the QQQ to finish very near 40 (which I called when it was at 42), but the high fliers like BRCM QLGC BRCD to fall to max pain. Notice that QCOM (below max pain) as is MSFT were both strong today. They can rally MSFT to precicely 70 (but no more IMHO), because at that point there is a staggering number of calls. Thus I expect MSFT will gravitate towards 70 because of a very large number of puts as well.
Look at INTC puts and calls at strike 35 as well.
INTC and 35 is like a magnet. If that breaks the next magnet is 32 1/2.
Finally, people buying March puts right now is totally irrelevant to anything. March puts, April Puts whatever are part of today's PC ratio and are meaningless for this expiry.
What month and what stocks were puts today's bought on?
The only thing the crooks care about right now is THIS month. A spike in puts if the month is March is totally meaningless. Thus another reason not to use it as any kind of short term indicator.
The only way to properly analyze the mess is to look at current option chains on the key stocks.
Then one must decide if we are trending or chopping.
If we are chopping, as we did last month, then figure very very close correlation of stocks and max pain (at least at some point during expiry week - with allowances made for the possibility that the crooks hedge one way or other off the pain values)
If we are trending strongly....
Throw max pain out the window.
Or consider betting against it.
When we were collapsing during August and September, people were buying puts like mad.
The sellers of those puts had to hedge by shorting as long as the selling continued. This increased the selling all the more.
The reverse happened on the way back up.
People were buying calls like mad and the sellers of those calls had to hedge by going long, the resultant short squeezes continued, one after another after another until all the call buyers were exhausted.
Thus, the recent P/C spikes are mostly meaningless in and of themselves. What is relevant is that it is a CHANGE IN ATTITUDE.
That change in attitude, at a time when most stocks are above max pain is what triggered this selloff. Unfortunately I do not know how far it goes.
I do note that there is very little CALL interest in FEB as compared to put interest. That would suggest to me that the downside move could be limited. If the donwside movement picks up, it could get really ugly do to delta hedging.
M |
