Stocks' pain over the last couple of days appears to be abating and according to some options pros, the market appears poised for a rally over the short term. Make that the very short term.
| Volatility Index |
| Close Today | % Change |
| 21.19 | -1.76 |
| Source: ILX |
Some indicators followed by contrarians are giving signs that could be positives for the market for the rest of Friday's session and into Monday, according to some options pros. Contrarian traders generally like to do the opposite of where the market overall is leaning. For example, they see increased put-buying -- speculating on a drop in a stock or index -- as positive because it means the idea has been around long enough for a short-term cycle to be nearing an end.
| Put/Call Ratio |
| Close Today | Previous Close |
| 0.49 | 0.56 |
| Source: ILX |
Jay Shartis, options strategist at
R.F. Lafferty, noted a lot of put-buying Friday, with the
Chicago Board Options Exchange equity put/call ratio soaring to nearly 76, which he said was very high.
That spike in the put/call ratio, coupled with a high reading on the
Nasdaq TRIN, Shartis said is helping the market rally, momentum he thinks will last into Monday. The TRIN, or traders index, is calculated by dividing the advance/decline line by the calculation of dividing up-volume by down-volume. The TRIN is used as a money-flow indicator.
Shartis said the lows of the day for the market are probably in. The TRIN got to a pretty high reading of 2.49 Friday morning.
Elsewhere in the options market, it appears there's some takeover speculation going on in
Donaldson Lufkin & Jenrette (DLJ Quote - Cramer on DLJ - Stock Picks).
Paul Foster of
1010WallStreet.com, in Chicago, pointed out that options volume in DLJ Thursday was heavier than usual, with about 2,000 contracts changing hands, compared to an average volume of about 1,000 to 1,100.
Foster noted that the stock has been strong over the past four weeks, in part since
UBS (UBS Quote - Cramer on UBS - Stock Picks) announced it was buying
PaineWebber (PWJ Quote - Cramer on PWJ - Stock Picks).
DLJ's stock was soaring, up 5 3/4, or 10%, to 62 5/8. Options-wise, DLJ options were seeing interest but it didn't appear to be anything dramatic. About 260 August 60 calls have changed hands, boosting the price 3/8 ($37.50) to 2 7/8 ($287.50).
The Skupp-Seidman options team at
Miller Tabak, in their daily note to clients, pointed out that the price of call options in DLJ got richer Thursday.
The
Chicago Board Options Exchange, after a little bit of a delay, will launch options trading Monday on what has been dubbed the
CBOE Mini-NDX index, a miniaturized version of its NDX options contract.
The NDX options contract is based on the
Nasdaq 100. The Mini-NDX ticker symbol will be MNX. The MNX is one tenth the size of the existing Nasdaq 100 index options contract which trades at the CBOE. The product was created, the CBOE said, to meet growing demand from investors looking for more ways to manage technology-oriented positions in their investment portfolios.
The exercise style on Mini-NDX options is European, meaning they can only be exercised on the last business day before the expiration date.
The new contract on the CBOE will offer investors a product to trade that is closer in size to the wildly popular option contract on the
Nasdaq 100 unit trust (QQQ Quote - Cramer on QQQ - Stock Picks), or QQQ, but not as small.
The underlying QQQ and options on the QQQ trade at the
American Stock Exchange. Options on the regular NDX at the CBOE are almost entirely traded by institutional investors because of the size of the contract.
Wolverine Trading will serve as designated primary market maker in the MNX, which will also have long-term options (Long-term Equity AnticiPation Securities) available.
Those looking for more information on the new contract can visit the Mini-NDX
page on the CBOE Web site.
Brian Louis
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