Dueling Put/Call Ratios Confuse Traders
Divergence? You want divergence? Take a look at the difference between index option trading and equity options trading.
In much the same way cyclical and growth stocks have pulled in different directions, trading in equity options has been centered on calls even as index options began leaning more heavily than usual toward puts. Traditionally, index options are used more frequently to hedge and options on individual equities are used primarily for speculation.
Schaeffer's Investment Research reported earlier this week that the 10-day moving S&P 100 index put/call average was at 1.86, the highest its been during the 1990s. Today, that trend continued and even picked up steam as traders seeking hedges and protection snapped up puts. The index equity put/call ratio shot to 2.33, showing 233 puts bought for every 100 calls. Trading in the S&P 100 options accounts for about 15% of the total Chicago Board Options Exchange volume and is the most active index options contract."The minuscule total OEX call volume taking place cannot be seen as anything other than overwhelmingly pessimistic," the Schaeffer report said. "To a contrarian, there can be no better security blanket." Contrarians hold the belief that excessive put activity bodes well for the market because it suggests an appropriate amount of pessimism. On the flip side of that action, trading in the names has been usually strong in call activity. "There's been a lot of call-buying. This market is putting in a serious peak," said Jay Shartsis, the head of options at R.F. Lafferty.
|Today (Noon)||Previous Close|
Call buyers who yesterday chased Antec (ANTC), a fiber-optic cable equipment company, may yet be rewarded as the stock put in a second consecutive strong session. Antec jumped 1 1/4 to 27 1/8 today, but the implied volatility of the June 25 calls got so high on Thursdsay that the price bump hadn't seeped into the options this morning. The June 25 calls traded about 500 contracts yesterday and closed up 3 9/16 ($356.25) to 4 1/2 ($450). Today, that contract had yet to trade but the bid/ask spread on it was 5-5 3/8. Volpe Brown Whelan began coverage of Antec today with a buy rating.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV