Dow 2007

[rathcoole_exile]

Put-Call ratio heading back to the Bulls at 1.49

PCR 1.33
Bears are still out in the woods having their picnic ....

 

[lurkerlurker]

PCR 1.33
Bears are still out in the woods having their picnic ....

I probably have no business trading this market unless I know this, however is a PCR of < 1 inherently bearish?

I understand that a lot of funds buy index call options in order to limit any downside risk in holding outright YM and ES futures. They use the remainder of their portfolio in AA and above bonds in order to guarantee protection of capital. So surely a lot of the call option buying is by these funds?

Puts will be purchased by speculators wanting to profit from a fall, or hedgers protecting real assets correlated with the ES and YM from declines. However, I also understand that option pricing varies with volatility, and therefore at certain points both speculators and hedgers may find the option premium to be too expensive in relation to risk/reward.

Question: to what extend does the PCR accurately predict short term market sentiment in the trading of these index futures?

I see we are testing strong enough resistance at 13,950. Without a break of that today, the index looks rather bearish to me over the weekend. I will look to sell weakness below 900, 850 if possible.

 

[lurkerlurker]

I'm going to stop being a bear. The index looks decidedly bullish and the trend is up. I won't buy it at this point, but I'm going to shut up about short selling.

 

[Ziff]

I'm going to stop being a bear. The index looks decidedly bullish and the trend is up. I won't buy it at this point, but I'm going to shut up about short selling.

What timeframe are you now operating from LL ?

 

[Kevin21]

i went long on YM at 13935. Still in and it's currently trading at 13960

 

[rathcoole_exile]

I probably have no business trading this market unless I know this, however is a PCR of < 1 inherently bearish?

No, quite the opposite.
A declining PCR means there are less Puts being bought which reflects a lack of bearish sentiment. ie less interest in speculating on downward moves and less concern about taking out downside portfolio insurance.
If PCR ever goes <1 on index then prepare for DOW36,000
The PCR on Equities is generally always a lot less, usually <1. This reflects the fact that amateur gamblers buy more Calls, as amateurs only expect or know how to profit when the market moves in only direction, ie UP.
(and possibly they only know how to trade equities not index and futures) I know I am grossly oversimplifying how who amatuers are and what they do, how they trade, but you get the general idea.
At the moment, PCR on equities is 0.48, the lowest I have seen for a very long time, reflecting the fact that people are buying up Calls in droves and not attempting to profit on a down move on individual equities. Whatever Puts sold will probably be funds moving their hedging stop-losses upwards.
So the logical conclusion from these ratios is that the bull run will continue.
Which is why most pros are sat on the sidelines waiting for the final "Greater Fool" before the big swing back down. ......hopefully .....

 

[rathcoole_exile]

II understand that a lot of funds buy index call options in order to limit any downside risk in holding outright YM and ES futures.

i think you've got the basics except you seem to have totally confused Puts with Calls.

 

[lurkerlurker]

What timeframe are you now operating from LL ?

I'm operating position trades from a 4 hour chart. When I have pinpointed an entry zone on these charts, I may zoom in to the PV information from the 5 and 15m charts to get a good entry in that direction. Sound better than trying intra-day trading/scalping through SB?

 

[rathcoole_exile]

I am currently sat on tens of thousands of dollars of losses from my DJX 138 Call Write. Hopefully I won't get exercised though - after all any guy who paid .40c for the premium can now get close to 4 times if he closes his position now.
If he chooses to exercise he will make, at current rates, (138.8 - 0.40) - 138 = .40c

What would you prefer ? A 300% return or (.40 / 138) = 0.3% return ?

Logical, but I'll still breathe a lot easier if and when price drops below my B/E

quick, where's the vodka ?

 

[lurkerlurker]

i think you've got the basics except you seem to have totally confused Puts with Calls.

On the ratios yes, but not on the quote you refer to. Am I correct in the following surmise (which was what I was inarticulately attempting to communicate above).

Call options allow the buyer to exercise the right to buy at a strike price. Should the underlying trade below the strike price, the option expires worthless.

Lets say a fund wants to give investors geared exposure to an index combined with capital protection. If they were to buy the outright futures, they would have a large downside risk if the market fell. However, if they were to buy calls, they could profit from any upside move however their downside risk would be limited to the premium.

Perhaps my comment read that a fund which was net long in futures would hedge in call options (obviously incorrect, they would use protective puts in this case). What I was meaning is that funds may buy call options as a lower risk alternative to holding outrights.

Hope this clears some things up (although I am probably still incorrect somewhere. I'm still a rank amateur - give me some time)

So, we want to be on the side of the pros and not the over eager buying public. So, if most pros are on the sidelines (with regard to position trades, not locals scalping off s/r), at what point do we know they are starting to sell short, and when should we jump on board to profit? (again, suggestions invited, I do not expect a total answer - wouldn't that make it too easy!)

 

[Kevin21]

i can't really comment on position trading, because it's something i don't really have any experience in. As in regards to scalping with spread betting, from my experience forget it. People do make money from scalping with spread betting, but large spreads and shifting prices tend to screw you a bit, but thats just my personal experience. For example with when i was spreadbetting the spread on the nikkei 225 was 40pts

 

[lurkerlurker]

I am currently sat on tens of thousands of dollars of losses from my DJX 138 Call Write. Hopefully I won't get exercised though - after all any guy who paid .40c for the premium can now get close to 4 times if he closes his position now.
If he chooses to exercise he will make, at current rates, (138.8 - 0.40) - 138 = .40c

What would you prefer ? A 300% return or (.40 / 138) = 0.3% return ?

Logical, but I'll still breathe a lot easier if and when price drops below my B/E

quick, where's the vodka ?

You write uncovered call options? In what some have described as a parabolic blow off in a bull market? Well, I have to say that I know bugger all about options and option pricing. I am sure you have the appropriate hedging, or otherwise calculated the possible outcomes and all the Greeks before writing your option.

Could I ask who you use to write options, and if writing options in the UK carries any additional regulatory or margin requirements? I'd quite like to write the odd conservative call option on equities which I own.

When the price drops below 13,800 the call you wrote will be out of the money, in which case you are safe? When is the expiry? Would it be cost effective for you to hedge the call, perhaps by buying a call at 139 and pocketing the difference? I don't know a lot about this, but I am eager to hear what you would do and your reasons for it.

Option writing seems rather interesting. This is something I would be interested in in perhaps a few years time when I am more advanced. I understand that for the most part retail buyers of options get the shaft, whereas conservative option writers tend to profit. The added factor of volatility (and quite frankly the algebra) bothers me, but I am sure I could program a spreadsheet to do the actual calculations eventually.

Comments appreciated.

 

[lurkerlurker]

i went long on YM at 13935. Still in and it's currently trading at 13960

Good call (again :cheesy: ) Kevin. Could I ask what your entry signals were, and where your stoploss is? Are you still bullish?

As for the spreads, 4 on the YM is just about bearable, but I'd really rather take one position until EOD or position trade against a spread of 8. I have found it very difficult to do as much as breakeven when day trading.

Are you still day trading, but with DMA futures this time around?

 

[lurkerlurker]

This market is coming off. There are large numbers of contracts changing hands above the ask if I am reading my T&S correctly!

I'm tempted to impulsively short 14,000, but I'll take that one on paper!

There we go. Sell limit 14000, buy stop 14020, buy limit 13940.

 

[lurkerlurker]

5m tick div seems to have called the top here, but I'm staying flat as my longer timeframes remain bullish. I would imaging that I would be able to get +10 out of this, but that is a mere +6 after spread - the risk is too high.

Also, some part of me wants to see 14,000.

 

[rathcoole_exile]

You write uncovered call options?
No, I am covered long at 139. My risk is therefore limited to the difference between the two premiums minus the difference between the 2 premiums.

In what some have described as a parabolic blow off in a bull market?
I am also short on Puts at the other end, which at the moment lloks like money-in-the bank.

Well, I have to say that I know bugger all about options and option pricing. I am sure you have the appropriate hedging, or otherwise calculated the possible outcomes and all the Greeks before writing your option.

Could I ask who you use to write options,
OptionsXpress for US and Internaxx for Uk/European

and if writing options in the UK carries any additional regulatory or margin requirements?
check www.internaxx.lu (Oh,and also UBS-Vickers for SET index futures options in Thailand, but we won't go down that road here just yet)

I'd quite like to write the odd conservative call option on equities which I own.
Yes, writing CCs can be a nice little earner, if you're prepared to "risk" losing out on potential upside. Imagine how you'd feel the last couple of days if your Call was assigned at some dim and distant low and you missed out on this "parabolic blow off"

When the price drops below 13,800 the call you wrote will be out of the money, in which case you are safe? When is the expiry?
July 20th but last day of trading is 19th equity options always expire 3rd Friday every month with Index usually a day earlier.
be careful with Index options as some settle at the AM price and some at the PM price, so you can get a nasty surprise just when you think things are rosy.

Would it be cost effective for you to hedge the call, perhaps by buying a call at 139 and pocketing the difference?
I sometimes write NPs but never NCs, so am always covered further North. there's just the risk mentioned above while the price is between the 2 Strike Points.

I don't know a lot about this, but I am eager to hear what you would do and your reasons for it.

Option writing seems rather interesting. This is something I would be interested in in perhaps a few years time when I am more advanced.
Agreed, to be honest, I don't think you're ready for it.

I understand that for the most part retail buyers of options get the shaft, whereas conservative option writers tend to profit.
Money management is the key.
it's all too easy, with the margins available, to overextend yourself and get caught out nastily. It's important not to be too greedy. It pays to have some insurance available at short notice to answer margin calls.
Some people put a certain amount of profits into the money markets. I tend to buy up more BRK/B shares as my insurance pot. (I dream of the day I can purchase BRK/A shares but at $110,000 per share that will have to wait. I think Kev21 might beat me to it )

The added factor of volatility (and quite frankly the algebra) bothers me, but I am sure I could program a spreadsheet to do the actual calculations eventually.
There are some very technical people around, including a lot of guys on this forum. You can learn a lot from them and still never fully understand options pricing. it's like nuclear physics.

I try to keep it simple - I apply position trading logic, ie using MAs, Elder Ray etc.
If the action would be to buy, i simply write the NP instead.
if the action would be to short, I write the Call Spread, and try to incorporate volatility as entry point (premiums are higher when Volatility is on the rise)

Comments appreciated.
Writing Options and Option spreads is the best way to make a living that has ever been invented - you are literally just selling time, or as Alexander Elder puts it, selling "hope".

But it's not for everyone, as with Futures and equity trading, it requires Rules, Method, Money Management and, here's the painful bit for you - Self-Discipline :idea: .

i suggest you keep reading up on it, perhaps write some very conservative CCs after a while, but please do not consider Put writing or Call Spread writing for a long long time.

 

[rathcoole_exile]

This market is coming off. There are large numbers of contracts changing hands above the ask if I am reading my T&S correctly!

I'm tempted to impulsively short 14,000, but I'll take that one on paper!

There we go. Sell limit 14000, buy stop 14020, buy limit 13940.

I thought you were going to stop using Ticks and all that other crap ? Look at the MAs - NOTHING is coming off at all.
you're driving me nuts. After all the advice people have given you here, and all your volte-face changing of methods every 5 minutes, you are still talking about "impulse" actions.

I'm sorry, but I for one will not be answering any more of your messages or trying to support you. Is there a Gamblers version of Alcoholics Anonymous in your country ? i suggest you check them out.....

 

[2468steve]

RC,

how's those XLF puts...ITM...?? For what it's worth I believe we'll see a bearish expiry next week.....

 

[rathcoole_exile]

RC,

how's those XLF puts...ITM...?? For what it's worth I believe we'll see a bearish expiry next week.....

am at B/E on those.
But I forget to mention before that I'd also written the July40 Call Spread on my smaller account (what I call "my daughters account" - see my post elsewhere about an account reaching billions of $ at a steady 3% per month over 30 years ).
Her Call Spread is still nicely OTM - she is doing better this month than I am !!

 

[lurkerlurker]

Misinterpretation Alert - I Didn't Sell This

I thought you were going to stop using Ticks and all that other crap ? Look at the MAs - NOTHING is coming off at all.
you're driving me nuts. After all the advice people have given you here, and all your volte-face changing of methods every 5 minutes, you are still talking about "impulse" actions.

I'm sorry, but I for one will not be answering any more of your messages or trying to support you. Is there a Gamblers version of Alcoholics Anonymous in your country ? i suggest you check them out.....

Mate, I'm going to have to edit the above post. I thought I made it clear that it was a paper trade and was merely joking around about going impulsively short at 14,000. Actually, I won't edit that post incase people think I have changed the meaning of the post. I stuck it into my paper system for a bit of light relief since I'm not trading at the moment. I have identified problems with overtrading, having to trade every day, etc. It seems to help me to take a "play version" of a trade in the market, just to see how it would work out. I certainly wouldn't put money on a short right now - in fact I would hope my posts have made that clear.

I also said "5m tick div seems to have called the top here, but I'm staying flat as my longer timeframes remain bullish. "

Guys, please note this. I have been an idiot, I've made mistakes, sometimes my discipline has sucked, I've taken bad entries and exits, but I have not shorted this market today and I have stuck to my new position trading rules of the DEMA (for trend) on the 4h charts!