"My question to you. If everyone has the same thought (and has had the same thought about the 9-10/98 period since let's say 10/97 and certainly since the US market breakdown starting in mid-7/98), the market would anticipate it (i.e., heavy put buying with large premiums) and would lessen the possibility that a large decline from here would occur. This basic contrarian theory is just one indicator and doesn't always work, "
First reaction is that there is a big difference between thought and action. Even when we, as investors, had the thought about what may happen, how many took the right action and got out of the mkt. Most of the time it is reactionary vs anticipatory, ie the present put/call ratio is 1.44, but two months ago it was probably reversed. Certainly, those buying puts and shorting are not going to be covering into this negative period. The real question becomes, do we think that the normal shift takes place in nov-apr and now begin to buy our calls and establish our long positions. I think that is the best we can hope for and does no good for our present dwindling portfolios except to force us to margin to take the chance for the upcoming good times, if indeed they are upcoming, which begs the question then are we investing or speculating.
don hays, mkt analyst at wheat firstunion, morning commentary is especially enlightening today
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