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To: Magrathea who wrote (214487)	10/22/2006 3:54:01 AM
From: Petz	Respond to of 275872

Something I tried successfully a long time ago was to generate buy signals when the ratio of puts to calls was greater than the "expected value" for several days. But I used data on put and call volume on the Pacific Options Exchange, rather than on individual stocks. Since the PSE has mostly technology stocks, a large volume of put trading might indicate excessive pessimism on the tech sector, and vice versa, a comparatively low volume might indicate excessive optimism. But I found that the raw data had to be corrected for the move of an underlying index, such as the QQQ's. So I would calculate a put volume/call volume ratio predictor as a function of the same day's fractional change in the QQQ's. So Predicted PSE Exchange Put Volume/Call Volume = a0 + a1(fractional change of QQQ in same trading day) The coefficients a0 and a1 would be calculated based on about 20 prior trading day's worth of data. Typically, the coefficients might look something like PCPred = 0.35 - 8(fractional change of QQQ), i.e., a0 = 0.35, a1 = -8.0 So, for example, if the QQQ rose 1%, the expected put/call ratio on PSE stocks would be 0.35 - 8*0.01, or 0.27. If the QQQ dropped the same amount, the expected P/C volume would be 0.43. So the difference between the ACTUAL put/call ratio and the value predicted by the equation was calculated each day. I would plot this differnce and some moving averages of it along with the QQQ price and try to determine trigger points for overoptimism (PC ratio too low for too long, compared to expected value) and overpessimism (ditto, but too high P/C). But I had no means to automatically retrieve the data, so I never really got around to completing a trading test with the idea, but it did appear promising. The same could be done with individual stocks, but too often heavy put trading is there for a reason, so I'm not sure using "contrary opinion" on the options traders is a good idea. Worth a look again? Petz