An Appraisal: Rally Draws Fuel From Options, Futures Strategies
Behind every good rally these days is a good deal of shadow-market trading.</br></br>Stocks again surged to new highs Friday, with the Dow Jones Industrial Average rising 23.97 points to a record 1535.21, the fourth record close last week. The broader market indexes also set new highs. Volume on the New York Stock Exchange was 177.9 million, the sixth highest ever.</br></br>Analysts note that all that trading isn't coming from investors just buying stocks on economic fundamentals. A lot of the activity, they say, is professional trading connected to the options and futures markets. Such intermarket trading, particularly as it involves covering short positions in the stock market, may be helping to sustain the rally, some analysts say.</br></br>The New York Stock Exchange estimates 30% of its volume lately has been connected to options or futures markets in some way. That estimate encompasses a plethora of trading strategies involving options on individual stocks and options and futures on stock indexes.</br></br>Connected trading in the shadow markets is "probably at a high point," says Donald Solodar, head of market surveillance at the Big Board. With equity options, a call offers the right to buy -- and a put offers the right to sell -- 100 shares of a stock at a set price during a fixed time. Options and futures on stock indexes allow investors to speculate or hedge on the direction of the entire market.