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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA
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To: Zeev Hed who wrote (10574)2/18/2002 1:17:42 PM
From: Road Walker  Read Replies (1) of 19219
 
Zeev,

re: the initiation of the activity (typically the buying) of puts and calls is simply reacted to by the other side

I would argue two points. One, that there are a lot more "initiation" short option trades than most would expect, and that those trades are more institutional and larger volume.

And two, unlike stock, option positions expire, so for every call contract bought there is also a sell of that contract in a fairly short time period (minus those positions that expire worthless or are exercised). And each of those long call sells (closing the OI) are based in negative sentiment.

So it could be argued that for each call contract that is traded, there are three possible motivations, and two are based on negative sentiment. I won't even get into spreads, straddles, and the sentiment behind the more exotic option trades.

John
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