I can't comment one way or another because options are all Greek to me (pun optional). But my question to you, MAESTRO, is: Why would the people placing options bets (or hedges or whatever) have any better idea, as a group, on price direction than anyone else? Are they collectively better informed? Is it an indication of a self-fulfilling prophecy about to unfold? I know you can't get into specifics, and that's just fine because I wouldn't understand them anyway.
Maestro, let's say one of us actually posted the EXACT same strategy what you are using. Would you say, yes, that's it???? If not, then what's the point of teasing us (well, I know, you pointed us in the right direction) and how do we know when we hit the nail, since you obviously can not acknowledge it???
It's a myth and you are incorrect. If someone buys 10,000 calls, you would assume this is a bullish trade. But you have no way to tell if those calls are hedged by selling 1,000,000 shares of stock. If that happened then the call buyer would own 10,000 synthetic puts and it would be a very bearish trade. Why would anyone do that? To tempt the ignorant into buying shares - making it easier for him to sell his stock short. Mark http://blog.mdwoptions.com/options_for_rookies/
A very good question. The answer is this. Why birds and fish tend to swarm? Why such unintelligent creatures form such stable formations that last for long time? Did you know that if you put two metronomes that have different frequency onto a moving surface they quickly will synchronize by them selves? In Taiwan there are billion fireflies who blink simultaneously in huge numbers all along the river banks. Why does it happen? Why atoms in a laser became synchronized and produce coherent and monochromatic light? There is no reason for that to happen. This is a fundamental property of closed loop feed back systems. Option chains and the distribution of their premiums vs their respective strike prices behave the same way without any individual option traders âknowingâ better where to put their bets. It just works this way. Collective behavioral patterns of spontaneous decision makers tend to synchronize revealing stable distribution patterns that have enormous predictive values. If the predator attacks the school of fish they move in much synchronized manner precisely reflecting the level of danger they are under.
Interesting response, MAESTRO. Thank you. I suppose the point is that if it works, it works, so don't mess with it while it works. One follow-up question: What is the shortest time frame in which you can make use of such information in the manner that you use it? I ask because I use sub-one-minute charts in my trading, and can potentially, although not likely, get multiple setups over the course of a couple of minutes.
Perhaps Maestro is talking about in essence a refinement of put/call volume or volume by strike - using implied volatility instead of volume. The weakness in put/call ratios or any indicator using option volume is this: there is a general assumption that all option volume is driven by buyers. That of course is ridiculous. If you really want to know which strikes and which options are highly sought-after you should look at their implied volatility, not their volume.