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To: patron_anejo_por_favor who wrote (267522)	11/17/2003 2:31:43 AM
From: mishedlo	Respond to of 436258

OPTION WORRIES, by Jason Goepfert, sentimenTrader Bottom Line: The smallest of option traders are all-out bullish. I discuss the ROBO put/call ratioTM frequently, because I think it's an important look into the real-money activities of those we know, for a fact, are small traders. Recall that this indicator looks at the purchasing of puts in opening transactions of 10 option contracts or less compared to the purchasing of calls in opening transactions, also for 10 contracts or less. This data removes the biggest arguments against traditional put/call ratios (such as from the CBOE) in that with those ratios we don't know the size or strategy behind the numbers. Here we know both. The average size of the trades making up the ROBO ratio were generally between $175 and $2100 this week, so we know we're talking about the smallest of traders here. Also, we narrow the subset down to option purchases to open only, and we know the strategy behind the trades -- these traders buy calls to speculate on rising equity prices, and they purchase puts to speculate on falling prices. There are few, if any, complex option or equity replacement strategies here. The ROBO p/c ratio for last week came in at 0.33, which is by far the lowest ratio seen at any time since December 2000. Since the week ended 10/17 through this past Friday, a time when the S&P has gained a whole 11 points (but lost a maximum of 21 points and gained a maximum of 24 points in between), these traders have purchased a total of 3.9 million calls, but bought a total of only 1.5 million puts. Again, these are opening transactions only, so it's safe to assume that we're talking about a great emphasis on upside speculation versus downside protection in a flat market. I've said before that the selling of calls against existing stock positions is a popular strategy for these traders, as they agree to cap the potential gains on their stocks in return for a little extra cash on the side, just in case their stocks decline or hold steady. In fact, this was the predominant strategy that these guys employed throughout the bear market. For the past three years, it has been rare to see a week go buy where call buying accounted for a greater percentage of the volume than call selling. Only twice has that happened for two weeks in a row -- until now. Since early October, call buying has outpaced call selling for five out of six weeks. Bullish options strategies (call buying and put selling) has outpaced bearish strategies (call selling and put buying) all six weeks, and has now reached a point where bullish strategies account for almost 60% of total volume. Once again, that is a pace unseen since the bubble days. These traders have undergone a shift in psychology -- from one of conservatism in protecting their existing stock positions, to one of outright speculation on more gains in the stock market. It is clear that the smallest of options traders, those that lore says are the most likely to lose their money, believe the bull market is back and here to stay. Scary.