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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: t2 who wrote (17988)	3/14/1999 11:49:00 AM
From: taxman	Read Replies (2) \| Respond to of 74651

open interest Open interest refers to the number of outstanding option contracts in in a particular class or series such as the microsoft 170 april 1999 call. Market-makers provide liquidity in option trading by risking their own capital for personal trading generally taking the opposite side of public orders. if you execute an order to buy 10 microsoft 170 april 1999 calls to open from a market maker who is opening a short position in the option, the open interest would increase by 10. you would then have the right, but not the obligation, to buy the underlying security (1000 shares of microsoft) at a specific price ($170) for a specified time (3rd friday of april 1999). The seller of a call option has the obligation to sell the underlying security should the buyer exercise his option to buy. if you then execute an order to sell the 10 microsoft 170 april 1999 calls to close to a market maker who is closing a short position in the option, the open interest would decrease by 10. the rights and obligations of the parties would then be extinguished. Put/Call Ratio the Put/Call Ratio is the number of puts traded divided by the number of calls traded. if the ratio is high it is considered bullish because public put buyers are thought to be wrong. if the ratio is low it is considered bearish because public call buyers are thought to be wrong. here is what one pundit has to say-- "10-Day CBOE Put/Call Ratio 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." but remember the basics--there are two sides to every option contract and not all market makers are rich. sounds like your way makes more sense than mr Schaeffer's. regards