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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (54193)	9/20/2002 2:16:51 PM
From: Paul Shread	Respond to of 209892

Jerry Wang from TheStreet.com article on high PCs: "There's always a lot going on in expiration [weeks] but what we've observed is that high put/call ratios at the beginning of expiration week leads to [continuing] higher put/call ratios, and the market tends to decline," said Jerry Wang, market strategist at Schaeffer's Investment Research in Cincinnati. As expiration approaches and the markets fall, more put contracts become "in the money" Wang noted. Furthermore, the delta of the contracts -- which measures the expected change in an option's premium for a given change in the price of the underlying stock or future contract -- increases as expiration approaches. "If the market falls, then you end up with a self-fulfilling cycle where the market falls, delta picks up and [market makers] have to short more stocks to hedge" their positions, he said. "This causes shares to fall even more and you end up with a vicious cycle" akin to the reverse of a short-covering rally. In addition to traders who've sold puts hedging their positions, the market's decline encourages put holders to book profits on the soon-to-be-expiring put contracts, and open up new defensive bets for the coming months, he said.