OI and hedging question

[Grantx]

Euro PC ratio from yesterday is 1.65. More puts than calls.
Would I be wrong in the assumption that the majority buyers of those puts are hedging long positions in the futures market?
Would the put sellers do what they can to protect price from achieving those levels (max pain theory)?

 

[Quiet1]

i don't think the put sellers would double-up their long exposure by buying to bring prices away from downside strikes. why bother? they are almost certainly delta-hedged anyway and the pay-off of vanilla options is not digital. that sort of behaviour can happen near barriers for light exotics though where if touched the structure becomes worthless (ie it has a large cliff-edge at the barrier) but for vanillas i don't see the point.

not sure if the long put holders are hedging underlying positions or not and not sure it really matters. if i buy a put while long the underlying all i'm doing is transferring the downside risk to the put seller who has to short the future to stay delta neutral. he'd still have to do that whether i was long a future or not.

my take is that most vol sellers are generally always delta-hedging because they're selling vol in the first place to extract the vol risk premium (or some related strategy). vol buyers are a more diverse bunch though and we can't say for sure whether they delta hedge. selling vol and delta-hedging is a well known profitable strategy; buying vol and delta-hedging is not!

 

[tommcginnis]

Before attributing a motive (or, 'a motive to a particular party'), I'd want to assess that straw-man idea over a number of markets and a number of market moves. FWIW, I have yet to see a reliable/robust causal link between option activity and particular party/s, that holds up to a bright light and historic scrutiny. (Not that I'm not still looking...!)

 

[beerntrading]

Euro PC ratio from yesterday is 1.65. More puts than calls.
Would I be wrong in the assumption that the majority buyers of those puts are hedging long positions in the futures market?
Would the put sellers do what they can to protect price from achieving those levels (max pain theory)?

Don't read anything into futures options order flow. It's utterly meaningless because there's no physical asset underlying and there's a market that uncaptured by volume data. In this case, the spot market for Euro is likely thousands of times (maybe millions?) the turnover of the futures.

 

[Handle123]

Euro PC ratio from yesterday is 1.65. More puts than calls.
Would I be wrong in the assumption that the majority buyers of those puts are hedging long positions in the futures market?
Would the put sellers do what they can to protect price from achieving those levels (max pain theory)?

I hedge a good deal or I am dancing shorts around my long term positions in all markets. If you look at monthly charts of Light Crude Oil last retracement was in June of 2017, and forming slight rounding, Weeklies showing possible Head and Shoulders, dailies showing bullish Ascending triangle and slightly bullish on spreads. So it is long term favorable of retracement but short term bullish, on the 12th prices got near breakout point when my software bought percentage based on position held and more for profit of retracement of puts, trendline starting AUG 16 point of taking profit on some while still holding puts for hedge of open profits on futures. Since more puts than calls, leaning on retracement.