Brian,
Is there something magical about the 25 point OTM options??. If you go to the 40 point OTMs, the ratio is now .90 to .20 or 4.5, when theoretically it should be the other way, about .35 to .20 . If you normalize to fair values, the ratio is already almost 8, puts to calls. I find it hard to understand why the far OTM options, which are often skewed from "fair value" anyway, are so significant only 2 weeks in front of expiration. The ATMS are somewhat skewed also; with OEM closing at 530.52, and a calculated average IV of 20, fair value of the calls is 9.05, while for the puts it is 8.10, but the offers are 8.50 (cheap) for the calls and 8.70 (expensive) for the puts, with the implied volatilities being 19.4 and 22.1 respectively. Normalized to fair values, that ratio is about 1.14, puts to calls (also the ratio of the IVs) It's fair to say the specialist is gonna make you pay more to bet on the downside here. I don't know what that ratio might be at a market bottom;I my hunch is it's probably more meaningful to watch the ATM ratio than those far OTMs, but I've never really followed these ratios before.
I just took a quick look at the NDX normalized ratio for the nearest strike, 1200, and got 1.08 calls to puts using best offers. So if OEX is not bad enough for a bottom, then NDX is downright scary. The "mirror image" 1100 puts and 1300 calls do suggest some bias to the downside, with a normalized ratio of about 1.25 puts to calls, but that's far from the ratio for the OTM OEX ratios, and in this case both sides are priced higher than fair value.
Dan |
