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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (21198)	7/27/1999 2:40:00 PM
From: KM	Respond to of 99985

Options Players See Monday's Fear Feeding Tuesday's Rally By Erin Arvedlund Staff Reporter 7/27/99 1:44 PM ET Smell the fear. Love the stock market. There aren't many panic buttons that get options traders hopping around as fast as the Chicago Board Options Exchange's overall put-call ratio, which closed Monday at a whopping 0.70, a level not seen since February of this year and October 1998, when it hit 0.80 and even approached parity. Volatility Index Today % Change 25.01 -3.47 Source: ILX More important, said Joe Sunderman of Schaeffer Investment Research in Cincinnati, is that Monday's 0.70 close capped a fairly tame, smoothed-out 21-day moving average of 0.38. "It's been fairly low over the past few weeks," Sunderman said of the ratio. "So this move is definitely out of the ordinary. We take that as a bullish sign." According to the options Bible, Options as a Strategic Investment (Prentice Hall Trade, 1992) by Larry McMillan, the average is around 0.50. McMillan and other options gurus adhere to the wisdom that once options-buying tilts clearly in one direction, the market is about to shift. Put/Call Ratio Today (Noon) Previous Close 0.44 0.49 Source: ILX Thus, the massive put-buying on Monday was signaling an end to the weakness because the masses are typically wrong -- or, at the very least, late. The put-call ratio is one of the cornerstones of this contrarian school of thought. Enough mumbo-jumbo. "If events like this week's economic data and Greenspan's [remarks] don't play out as expected, that could give the market a real shot in the arm," Sunderman explained. Thus, investors gear up for that possibility by buying puts.