Digestion Interrupted

As we saw a few days of what looked to be digestion of the recent drop and
then bounce, “up-chuck” all over again. This time the fiber optic manufacturers
and carriers have the devaluation face on. Nortel’s earnings beat the street,
but the sales growth forecast disappointed.
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PMCS |
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CIEN |
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GLW |
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and
others were dragged in their wake.

The pre-open paper this morning built up to buy
calls, once again, but at a subdued rate. Today, running less than 2:1. By the
end of the first hour, this trend backed off to a 1:1 ratio.
 

As for the public interest in puts, we are seeing a
taper of the selling from the past few days to a balanced 1:1 ratio. JDSU and
GLW puts were in demand, though, more so than their average daily rate. The
first hour saw the public picking up the pace slightly in put buying. 

Keep in mind, these are orders attempting an execution on the exchanges.
These orders do not always get filled. This is important because this is
sentiment of the customer base, backed by their own bucks. Some or most of the
orders do in fact get filled, but regardless, we get an indication of true
trading sentiment being brought to the marketplace, by investors/traders. 

These indications are not included in the skewed put/call readings generated
by data vendors based on total fills, which include market maker and
professional paper. The put/call readings have hedge transactions in them. These
are large trades that are offset with stock or other options trades, and distort
the sentiment value.

Many services discount a portion of the weighting, due to this skewing. We
don’t have to modify these numbers since these are straight, electronic orders,
generated with the intention to become a transaction on the market. Thus, we can
use this information un-distilled, for input into sentiment models.