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mortiz

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Reply with quote  #1 
Options expiration will finish out the coming week, and put premiums paid by retail equity options traders continue their pricey trend.

The total retail (all contract transaction sizes) equity options traders' Buy-To-Open (BTO) put-call (PC) premium ratio continues higher since the initial price bottom the week ending October 24th. The blue curve is the 4 week moving average (MA) of the retail equity BTO PC premium ratio is currently at 1.83, and has reached its highest level since February 2003.  The week ending February 7, 2003 posted a BTO PC premium ratio of 4.31, which sharply skewed the indicator.

The OCC verified at the time their numbers were correct for that week. The weekly high retail BTO PC premium ratio over the past four weeks was 2.08, and all four weeks were historically high.  The smallest retail options traders' (1 to 10 contracts per transaction) BTO PC premium ratio 4 week MA (not shown) is at 1.03, so the most dearly priced put premiums are being bought by the larger retail traders. 

I would expect the market makers, who are heavily invested in the other side of these puts, will do what they can to erode the value of the retail put premiums in the coming week.



The smallest retail equity options trader BTO PC volume ratio exhibited higher level last week, but is not yet in the range one would expect considering the price damage incurred over the past few months.  When a solid price bottom is established, I would expect this BTO PC ratio to be well above 1.0.



The options volume-volatility "power" indicator which measures the level of options volume and volatility versus their moving averages.  High levels for this tool indicate high volume and volatility in an options series relative to their to their moving averages.  Low power indicator values reflect complacency in the options market, which is amazing considering the price action over the past several weeks.

There are several variants of the options volume-volatility indicator, but I prefer the SPY-VIX and OEX-VXO series since the market makers dominate the trading in OEX and SPY option.

First the SPY-VIX series, which is at sell signal levels, but I would expect this indicator to sharply rise this week.

The following three charts are of the daily variety, and I apologize for the price curves of these charts.... one wouldn't think log charts would be needed for two to four year time windows, but it looks like that will be in order if this keeps up.



The OEX-VXO options volume-volatility variant, also solidly in sell territory.



Another options tool that has been an excellent guide of caution for bottom picking the past two months is illustrated in the final chart. The OCC publishes the daily put and call volume for retail traders, brokerage firms, and market makers for all contracts.  The blue indicator in the below chart is the difference between the Market Makers' equity options PC ratio and the retail/brokerage firm PC ratio.

The OCC has published this data for a little over three years, so the history of this series is short.  However, intermediate price bottoms typically coincide with this indicator below its zero line, indicating the market maker PC ratio is lower than the retail/brokerage firm PC ratio.

For the past many weeks, this indicator has remained well above its zero line telling us the market makers are more bearish than all other options traders. I would expect this tool to fall below zero before a sustainable price rally unfolds.



Trader psychology indicators usually exhibit lesser extremes at final price bottoms, but considering the price debacle over the past several months, a high level of panic has not been evident, particularly with the smallest retail traders.... likely more pain for the buy and hold investor over the coming weeks/months.

FWIW

Randy
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relax

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Reply with quote  #2 

appreciated!!!

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stevepink

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Reply with quote  #3 
Randy,

Great data.  I can't seem to find your last chart data
at OCC , ie the daily breakdown of mm, retail, firm
put call volume.  can you point me in the right
direction?

Thanks.

Steve
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mortiz

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Reply with quote  #4 
Steve,

Welcome to TW, and you've asked a good question.  First, access this link;

http://www.optionsclearing.com/market/volume/volbyproduct_form.jsp

What I do, is download the market maker and "All" equity put and call volume for the equity options, then subtract the market maker put and call volume from the Total (All) put and call volume which gives you the retail plus firm put and call volume.  You can certainly break it down further by also scraping the customer and firm put and call volume separately.

To access the Equity Options volume, the Enter Symbol field is left blank and the "Filter on Product Kind" field is set to Equity Options.  The Filter on Account Type parameter is then changed to the appropriate group of interest (All, Market Maker, Customer or Firm).

There are an unlimited number of permutations and data variants that can be derived from this series depending upon your imagination and (my problem) sufficient time to experiment,

Hope this helps.

Randy
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stevepink

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Reply with quote  #5 
Randy,

Got it, thanks...I'm going to try to work with those
numbers and see what comes up in last two weeks.


Steve
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stevepink

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Reply with quote  #6 

8-day ma. of difference between mm put/call ratio
and total put/call ratio is still positive at .055, and
today's 1-day reading was -.013. 

ISE Total P/C was 75, usually a bullish reading,
especially on an up day.  However, I noticed
a similar occurence on 9/19/2008, and that wasn't
bullish in hindsight.  Of course, that was at the
height of the Lehman, TARP hysteria.

Steve





 
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