Fewer puts than calls

william the wie

Gold Member
Joined
Nov 18, 2009
Messages
16,667
Reaction score
2,379
Points
280
2.4 puts per call is the more or less neutral point less than one put per call which is what I am seeing and that is a fairly good indication of a downturn in the near future.
 
OP
william the wie

william the wie

Gold Member
Joined
Nov 18, 2009
Messages
16,667
Reaction score
2,379
Points
280
I think the market has run up way too high too fast
Definitely true. Also even semi-observant Jews tend to get out of the market before Rosh Hashana (Sept 9th this year) until the end of Yom Kippur (Sept 19th) and that can shift charts.
 

justinacolmena

Gold Member
Joined
Oct 9, 2017
Messages
1,186
Reaction score
133
Points
130
Location
alaska, usa
A put is a "gentleman's agreement" from the "house" to buy back stock from a consumer investor at no less than a certain price.

Trouble is that there's no money to back it up when the market falls.

A call is a lottery bet on a bull market for any particular stock. Plenty of suckers.
 
OP
william the wie

william the wie

Gold Member
Joined
Nov 18, 2009
Messages
16,667
Reaction score
2,379
Points
280
2.4 Puts per call is average? That would seem to be a very bearish sentiment, I thought the average PCR was under 1.
Think it through, when a put is exercised shares or contracts in the underlying have to be bought to permit the exercise which causes the price to rise slightly for a time. but more puts having to be exercised put a floor under the underlying.
 

MarathonMike

Platinum Member
Joined
Dec 30, 2014
Messages
17,689
Reaction score
7,907
Points
430
Location
The Southwestern Desert
Ok I got it, but I was asking if the market average for Puts to Calls is really that high. Unless you meant something else by 2.4 Puts to Calls being a neutral point.
 
OP
william the wie

william the wie

Gold Member
Joined
Nov 18, 2009
Messages
16,667
Reaction score
2,379
Points
280
Ok I got it, but I was asking if the market average for Puts to Calls is really that high. Unless you meant something else by 2.4 Puts to Calls being a neutral point.
I took a sample of 30 issues that met my criteria of five years of increasing dividends and at least a 5% current dividend yield. I was able to sell covered calls at a price where I would have a capital gain and a premium yield = to my minimum annual dividend on six issues if exercised.

Those six issues are EDF, GUT, HRZN, ORC, PEI, & SDPL. There were three other issues where I got a quick down and dirty return that convinced me I needed a stronger cash position and some hedges. So, I looked over the other 24 issues that made the cut for dividends criteria but did not make the cut for a covered call position nor for writing puts. That after only 48 hours after I had written the calls. I doublechecked sources on the put call ratio and they mostly agreed on the 2.4 or more puts per call Investopedia had the simplest explanation of why that is true. Cellblock is a good source here on this board. I'm thinking about buying some index options to cover for a downturn but otherwise this market is getting too rich for me.
 

Toddsterpatriot

Diamond Member
Joined
May 3, 2011
Messages
58,282
Reaction score
8,112
Points
2,030
Location
Chicago
A put is a "gentleman's agreement" from the "house" to buy back stock from a consumer investor at no less than a certain price.

Trouble is that there's no money to back it up when the market falls.

A call is a lottery bet on a bull market for any particular stock. Plenty of suckers.
Trouble is that there's no money to back it up when the market falls.

When the market falls, why do you think I need money to "put" my stock?
 

justinacolmena

Gold Member
Joined
Oct 9, 2017
Messages
1,186
Reaction score
133
Points
130
Location
alaska, usa
You guys are forgetting a nifty piece of financial gimmickry called "put-call parity." It works like this:

S + P = C + K

where

K = the strike price in cash
P = the put option
S = the stock
C = the call option

So any particular stock plus a put option is equivalent to a call option plus the cash to exercise it, all other things (strike price and deadline) being the same. Of course the stock gets voting rights, but the call option does not, so brokers sometimes create artificial shares of stock from the right-hand side of the equation; and they justify selling such artificial shares to margin investors in that their shares of stock are not "fully paid for" at the brokerage house.

There is a lottery on artificial shares when it comes to dividends or voting rights, the latter are forfeited by the investor, and the former are replaced with a substitute payment which has different tax consequences for the investor.

Go right ahead. Draw and quarter those crooked brokers and their Chicago options in court. I used to work in that industry, and now they have put a price on my head.
 

justinacolmena

Gold Member
Joined
Oct 9, 2017
Messages
1,186
Reaction score
133
Points
130
Location
alaska, usa
That's one of the difficulties in regulating the stock market. Real estate or land is tangible: assuming you own it free and clear, you can build on it or live on it and no one should question your ownership of or evict you from it, even if its fair market value falls.

Stock in a corporation is intangible. You can look at your broker statement or stock certificates and they will tell you what it's worth currently, but if you lose your ownership of it, well, you just lost your money in the stock market and others mock you because their money is "professionally managed" safe and secure in their 401(k) accounts and they were "obedient" to their Baptist-preacher financial advisers.

So SIPC is not for individual investors.
 

Natural Citizen

Platinum Member
Joined
Aug 8, 2016
Messages
10,632
Reaction score
3,452
Points
390
The market is distorted. Stocks and Bonds are way too high.

Be careful.

I think major correction coming. Historic even. 40-50% bust? Could be, wabbits. Could be...
 

New Posts

Most reactions - Past 7 days

Top