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Strategies & Market Trends : Stock Attack -- A Complete Analysis
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To: Chris who wrote (4316)12/24/1997 12:13:00 AM
From: Chris  Read Replies (2) of 42787
 
Interesting email on put/call ratios:

courtesy by Bruce Silvara:

geocities.com

I read an article in IBD today that I liked. It said that by
following the ratio of trading volume in puts and calls can tell you a lot
about whether the stock market is bullish or bearish. Research has shown that
options players are usually wrong about the market. When they're extremely
bearish,that can be a buy signal. And if they're very bullish, you'll want to
proceed with caution. If you buy a call option, you're buying the right to buy
100 shares of a certain stock at a certain price by a specific time. You
think the stock price is going to increase. Conversely, if you buy a put
option, you're betting the stick will go down in price by the expiration date.
When there's substantially more puts bought than calls, the options
player's sentiment is bearish. But those who have tracked this indicator
historically know that this is actually bullish. Indeed, on Oct. 27 the
put/callratio hit a 12-month high of .84. The Dow Jones lost 554.27 points
that day. Options traders were also on the wrong side of the market as it
reached its peak in August. The put/call ratio hit a five-year low of .38 an
Aug. 6. The next day the Dow topped. Right now the put/call ratio is at its
yearly high\a bearish signal(see clipping down load). It will be interesting
to watch this indicator vs. the market............
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