Yestoday on news, a reporter said that BP's option is showing that 63% of the market are betting that BP's price will go down in the future. I would like to know how he come up with this number (63%) and how to look at options to get a clue of what the reporter is saying. I googled around but didn't find much. The following are bp's options: http://finance.yahoo.com/q/op?s=bp Thanks for your time.
do they use the sum of the volume of all the puts vs the sum of volume of all the calls? I tried it with the yahoo link above, volume of puts / (volume of puts + volume of calls) = 65%.
There is no way of knowing how the participants are positioned. just because puts have greater open interest than calls doesn't mean anything because you don't know what other positions people may have. For example, if someone comes in and buys puts on BP. Does that necessarily mean that the person is bearish on BP!? No, because the person may also be holding long stock in which case buying a put creates a synthetic long call, which is not a bearish position.
This is a very interesting question. It is possible to back out an implied distribution of underlying prices at expiration, given the IV's of the full strip of options within an expiration. This guy probably created an implied distribution from the IV's and saw that 63% of the implied underlying prices were lower at XYZ expiration. All the commentator is really saying is that puts (downside) has a much higher IV than the calls (upside). This is normal for any company in serious distress.
Isn't this the ISE ratio, or whatever? It is very possible that this is what the commentator was talking about. I wouldn't agree with the commentators conclusions if he was discussing the ISE ration though. It is a fickle indicator at best. Most talking heads on CNBC are clueless. They are typically marketing people with an agenda of selling whatever service their company is offering. I am never suprised at the idiocy that they spew.