Options Strategists Tracking Retail Put Trading Don't See a Clear Sign of Bull Market's Return
Figuring that the small investor is the last to get wind of a major market swing, options strategists are tracking the public's trek into puts.</br></br>Aggressive retail trading in put options -- which give holders the right to sell a stock or the cash value of a stock index at a set price for a set time, in anticipation of declining prices -- is viewed as a contrary indicator. Heavy action by the public in put options suggests to professionals that the stock market has bottomed out and that a rally is at hand.</br></br>So far, the retail action in puts isn't shouting the return of a bull market.</br></br>"Essentially, it's close, but no cigar," says Steve Shobin, a market analyst at Merrill Lynch. "The public is kind of worn out, but hasn't given up entirely." Philip Roth, vice president of technical analysis at E.F. Hutton, adds: "The options indicators are disappointing if you're looking for a low in the market."</br></br>With the stock market twisting in the wind, overall put-option trading has been rising. Options trading on a moving 10-day average on the Chicago Board Options Exchange is running about eight puts to every 10 calls. During April, the ratio was 4 1/2 puts for every 10 calls. A call option is the right to buy a stock or the cash value of a stock index at a set price for a set time, in anticipation of rising prices. With index options, investors can speculate on the direction of the overall market rather than individual stocks.