Dynamo2000

Market Sentiment: What the Relative Equity Put/Call Ratio Tells Us

I believe it has long been observed that put/call ratios are correlated with moves in the market. I have never however read of any reasonable explanation as to why the ratio of the VOLUME of puts to calls should be so correlated. One would think that the level of implied volatility might be correlated - but that the VOLUME should be correlated I find very puzzling. Can anyone suggest a plausible explanation as why such a correlation should exist?

An Options Strategy for Volatile Times

From an analytical point of view, for Jcrash's strategy to work it is necessary that there is a significant drop (volatility drops huge in his words) in the implied volatility between the day of earnings and the next day. Can anyone suggest a reason for this phenomenon or even relate their own experience in dealing with this?

An Options Strategy for Volatile Times

I would like to add a point of clarification motivated by the strategy suggested by Jcrash and the comment Chungst made in response. I wish to emphasize that I consider my comments here to be that of clarification and not criticism since I do not know for certain what the exact strategy or intent are of the comments by the above two contributors. My understanding of Jcrash’s strategy is that selling a straddle on an earnings day can be very profitable. I have never tried or even investigated this strategy. (I certainly hope it is true). Chungst seems to be giving two perfectly valid examples of when this strategy did NOT work. As a part time investor always looking for new (better) and interesting strategies I would like to emphasize the following point. However valid Chungst (counter) examples may be, it has little bearing on the usefulness of the strategy Jcrash was suggesting. The critical issue in not whether Jcrash’s strategy works close to 100% of the time. The critical issue is whether the probablility of it working times the (expected) profit minus the probability of it not working times the (expected) loss is positive or negative. If it is positive you have a winning strategy. The more positive the better the strategy. My guess is that Jcrash is telling us that the “forever sought after number” is very positive! (I hope he is right). From a practical point of view to investigate the matter one must either look at historical records if available, and/or watch the market for a while and count your winnings and losses. What I have said is nothing new. Las Vegas for its part rakes in billions of dollars every year based on strategies that IN THE LONG RUN are positive for THEM (not you).