Education Center
Your explanation of how open interests affect stock prices was fascinating! How do I determine what is a large open interest for a particular stock?
It is not really a fixed number for any specific option on a stock. It depends on what the current open interests are and that can vary from month to month. What you look for is any open interest for a particular strike or group of strike prices that is head and shoulders above other […]
On yesterday’s news on NBR it was stated that the S&P 500 will remove several stock listings and add substitutes to replace them. My question is how is the index calibrated to account for these changes? The to be replaced companies have been in the dumper so to speak and the replacements are relatively more sound and level priced stocks. How do the managers of this index account for the transition?
The S&P 500 is market cap weighted. That means those stocks with the largest capitalization have the most impact on the index movements. If you take out a stock whose market capitalization has tanked and replace it with a stock with a larger market cap, the value of the index will rise. What fund managers […]
I am still confused over the strategy involved in recommending puts or calls with low or no open interest when you have repeatedly stated that you prefer options with 100 OI or better yourself. Are we to ignore your advice? Do you yourself buy options when there is no OI? Also it would be reassuring to hear from you that when you are recommending these low or no OI options that you are not selling the relavant puts and calls yourself. If these questions have occured to me I am sure they have occured to others as well and it would be reassuring to me if not to the readership in general if you would outline and clarify your position for me on these points.
It is our general rule of thumb to buy options with 100 or more open interests primarily because that allows us to better use stop losses and shave the spread. In order for a stop on an option to work it has to be triggered by a sale at that level. If there are not […]
Can you please explain the term “secular” bear market used in last night’s Daily.
Ah, secular bear markets, secular bull markets. The idea is that these are long term cycles in one direction of the other. Bear, long term downtrend. Bull, long term up trend. The bull market that ended in March 2000 was a secular bull market that covered two decades. Some say shorter as it was broken […]
Why would a stock that is below 11.00 split? RE: WTRS.
WTRS announced a 3:2 split with a stock price just below $11. One of the ways a stock can make strong moves higher is to attract institutional investors. Institutions buy large blocks of stock in order to be efficient. If a company does not have adequate float, institutions cannot buy that stock even if they […]
I don’t understand how to read the put/call ratio. I cannot get it through my head how to interpret this. A solution would be greatly appreciated.
The put/call ratio measures the number of puts traded versus the number of calls traded in a given session. First thing to understand is that the put/call ratio is a sentiment indicator. It is a super sentiment indicator so to speak as option traders, as a whole, tend to be speculators. They buy out of […]
You mention money flow diving in one of your recent reports. What do you find to be the most accurate measure of this? I have seen so many with different values on the same day, I’m getting dizzy trying to come up with the best measure.
Money flow has many different heads to it. We look at Bloomberg money flow and TC2000 moneystream when determining money flow levels for our stocks as we have watched them over a long period of time and are comfortable with what they show. There is a caveat on all money flow readings, however: they work […]
I have enjoyed and profited from your service for several years and have a question. How important is it for a stock to reach the target volume or better on a BO play or even a play where you note the target volume? I’ve been following your alert service and note that up to 80% of the alerts do not reach the target volume even though they reach the BO point. I regularly calculate the % volume using the % of the day that has passed and that doesn’t help much. Keep up the good work you are the only service I now use and find your analysis of the market and economic situation invaluable.
Your observations on the breakout are right on target: many times the price is met before the volume is met. As volume levels and intensity vary throughout a session it is often difficult to determine where the volume is exactly. It is easy at the end of a session or if there is an immense […]
In the weekend report you said mutual funds were in the process of unloading high P/E tech stocks from the prior bull market rally. Who is buying them?
There has been selling all the way down punctuated by periods of buying. In each case the selling has overcome the buying ultimately and pushed the stocks lower. There are mutual funds still dumping shares as we saw with WCOM and ORCL on very high volume, and other tech stocks as well as they continue […]
It seems the markets would have to come down quite a bit for PE levels to reach levels that would make stocks more attractive. If that is correct how far would the Nasdaq, Dow, and S&P 500 have to come down?
It is hard to pick bottoms in terms of an absolute number. That is one of the things that gave technical analysis a bad name (e.g., the Dow will be at 11,323.73 on February 4, 2003). One thing to remember when looking at P/E levels: it is not just price but earnings. If you look […]
