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augieboo

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augieboo

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Re: None

Wednesday, 07/10/2002 9:05:13 PM

Wednesday, July 10, 2002 9:05:13 PM

Post# of 241
MISH ON P/C RATIO AND HOW IT RELATES AND/OR COMPARES TO MAX PAIN ANALYSIS

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Notwhithstanding your observations, doesn't conventional wisdom discount the quantity of sells of puts and calls, since the "retail" end of these transactions is approximately
equal to the "buys?" (I mean, retail traders are almost always buyers).

I do not know what convention wisdom is other, than CW looks at P/C ratio and goes ga ga (which I think is a waste of ga ga's)

Looking at CBOE after the close today, I note that QQQ max pain moved a half step further away from 28. 26-27 is a clear 50-50 tossup now, with 28 moving further away. Another thing about PC ratios is they do not take into consideration the month. This close to expiry, options purchased next month or december is meaningless IMO.

This is nearly a repeat of last month.
Calls outnumber puts at every damn strike above 26.
Last month calls outnumbered puts at almost every strike.
Look at the "key strikes" closest to where we are now
at 25 68K calls vs 84K puts
at 26 87K calls vs 48K puts
at 27 120K calls vs 38K puts
at 28 128K calls vs 52K Puts

There is a ton of $ for someone to make if QQQ does not close above 27. I think 26 is a likely target.

As for "retail" yes that is a problem as well as an assumption. We do not really know who the holder of the option is. We ASSUME when we see puts and calls that Joe Public is the holder of long puts and long calls. Max Pain changes dramatically if that assumption is wrong. If Joe Public sold zillions of naked or covered calls then the option pits own those calls and have every reason to drive the stock up to take possession. Normally that is not the case but one never really knows for sure. In general it tends to average out especially when option volume at a strike exceeds 50K. My minimum number of contracts for any direct correlation is about 20K contracts and QQQ exceeeds that always.

M
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