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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: Justa Werkenstiff who wrote (60861)5/2/2002 10:30:29 PM
From: mishedlo   of 99280
 
Why? Because growing levels of put activity is a sign of investor pessimism, which suggests that most option traders have become bearish.

The above is a totally inacurate statement.

Closing of puts is a bullish not bearish activity.
Naked selling of puts is a bullish not bearish activity.

On average one can GUESS (the same guess that I make looking at open interest) that puts are long and not short.
But the above activity is further skewed by two factors that max pain activity is not:

1) What month
2) open interest VS activity

Thus there are three problems with intraday PC ratios but one problem looking at open interest.

For example:
I bought and sold puts today.
I could just have easily shorted calls and covered them.
Both have the same affect and on an intraday basis probably the same risk/reward (if in the money). The intraday P/C ratio double counts one as bearish, double counts the other as bullish, when in fact there should be no count at all IMO. If I shorted puts and kept them, that would be bullish but the opening sentence would have you believe the opposite. If I closed puts from the previous day the P/C ratio would be a single count in the wrong direction, just as closing a previous day call position would be a single count wrong in the other direction.

Too damn many problems with intra-day P/C ratios.

Why not just look at open interest on the key issues and forget about intra day P/C ratios?

Indeed. Why not?
Max Pain on the key issues, especially by eyeball method easily allows one to see what is going on AND lets one see if puts were opened or closed etc, which intraday P/C ratio does not.

IntraDay PC ratio is a gross simplification and far far too error prone for realistic assessment IMHO.

M
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