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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: The Perfect Hedge who wrote (41338)	4/26/1998 1:46:00 PM
From: Darth Trader	Respond to of 58727

Understanding Put / Call Contrarian Sentiment To make a sound option investment decision, you need to have a good idea of what the market is doing. This means knowing what the historical data and fundamentals indicate as well as gauging the emotions or sentiment of market participants. One sentiment-gauging technique is known as put/call ratios. A put is a bet on a decline, and a call is a bet on an advance. At Schaeffer's Investment Research, we found that one of the most effective ways to follow put/call ratios is to monitor equity options on the CBOE (Chicago Board Options Exchange). We've found that when there is an excessive amount of bullish bets (call buying) made on equities, the buying strength has probably depleted. The opposite is true when there is a large number of bearish bets (put buying). This generally means the selling strength has faded. Therefore, when there is an exorbitantly large number of puts compared to calls (a high put/call ratio), there are many investors who have made leveraged bets that stocks are going to decline. At that point, these investors have already sold a great deal of their stock positions, which means there is a lack of selling strength. In such a scenario, even slightly more buying strength will overwhelm the remaining sellers and push the market back up. This is why the overall market tends to rally following high equity put/call ratios. How high would a put/call ratio have to be to predict a major move up in stocks? There is no exact answer due to all the variables in the stock market. In general, we have found that if the ratio of equity puts to equity calls is greater than 0.55 on any given day, history has shown that the market should go up. Every day, the CBOE announces several totals for option volume, including the total volume for equity puts and calls (you'll have to do the math yourself). To obtain this information, contact the CBOE at 1-800-OPTIONS or visit their website at www.CBOE.com. You can also look at this data by using a 10-unit moving average. Simply add up the last 10 days' readings and divide by 10. When this number goes above 0.47, the indicator suggests that the market is set to rally. Should the 10-day average exceed 0.50, analysis implies the market is set for a major move. The above from Bernie Schaeffer's Site optionsource.com The data below from CBOE site cboe.com Date put/call ratio 4/24 .67 4/23 .75 4/22 .55 4/21 .51 4/20 .48 4/17 .55 4/16 .66 4/15 .60 4/14 .64 4/13 .80 10da .62

To: The Perfect Hedge who wrote (41338)	4/26/1998 2:11:00 PM
From: Patrick Slevin	Read Replies (1) \| Respond to of 58727

Try it. $250 is one point on the S&Ps for one contract. You have nominal exposure. If you are willing to trade S&Ps with the calones to take 250 dollar moves you should definitely take a flyer on an introductory offer of 250 bucks. It's chicken feed. I see Darth's reply is based on options, I did not know Darth was an employee of Bernie Schaeffer. This is a completely different environment from S&P work. My suggestion to you is, if you can afford the hit from a single contract going bad allowing these people to trade for you based on the system they have then take a flyer on it. Personally? No one trades my account but me. In your case, in the futures league, $250 is what a experienced trader may spend in commissions each day. So I would give it a whirl for a month. For more info on futures try this site. smotass.net There are a few links there for beginning traders in futures.

To: The Perfect Hedge who wrote (41338)	4/26/1998 3:03:00 PM
From: Tom Trader	Respond to of 58727

GD--I assume that you are talking about a volatility based system. I am familiar with them--they were the rage in the mid 80s A few things for you to keep in mind: Get the results of the back testing of the system on a year by year basis. See whether the system produces profitable results each year. What I mean is that it is possible to have a system that makes a huge profit over three years and yet loses in 2 of the 3 years. When that happens most people will not stay with the system. Also get the $win/loss ratio, the number of consecutive losers, the maximum draw-down it has experienced. Consecutive losers is important because when one loses several times in a row, it is difficult to stay with the system--especially when it is a system that you have not developed yourself. Draw-down is important because if it is large, you may not have the capital or the will to continue with the system. Finally, you need to know the amount of slippage they have factored into each trade. It is rare to get an order filled at your stop ---depending on the market one can be several tics off the stop. If sufficient slippage has not been built in, the back test results are meaningless. Also, be certain that you have the risk capital and the discipline to follow all the signals that the system triggers without second guessing whether you should take the signal or not. If you cannot do that then don't waste your money on any system. Re vendor systems -- I am basically wary of them--I have bought a couple over the years. They are not worth the money. But there are also good ones around. I have found that the more expensive the system, more often than not, the less stable it seems to be in real time trading. There is nothing like the confidence that one gets from trading a system that one has developed oneself and one knows the logic as it relates to how it works. Re the system that you are looking at, I don't know anything about it but I will not use a system that has not been back-tested at least 10 years--then it has a chance to prove itself over different markets. A three year back test is IMO completely inadequate -- the last three years have been, for the most part, a trending market in the S&Ps and not representative of what markets are really like. Just some thoughts for you -- well intended as always Regards