Monday, April 5, 2010
Put Call Ratios - Equity Put Call Ratio, Index Equity Put Call Ratio, Total Put Call
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A main point to take from this post is that the put call ratio for the session of April 05, 2010, is on the low side of its historic range and, therefore, supports the hypothesis of a complacent stock market. This post is used in the market analysis of today's report(the link to the report was sent in an email message to the blog subscribers).
Now we provide the details, starting with some background information, as it may be useful for those not familiar enough with put call ratios, and how they are used.
Put Call ratios are used by professional traders to help locate extremes in market sentiment. It is believed that when the market is complacent , the volume of puts traded in comparison to the volume of calls traded, is smaller than normal (The put call ratio is on the low side of a range). On the other extreme of the market, when it is retreating, the volume of puts with comparison to the volume of calls can reach a higher than normal extreme.
Calls and puts are traded on individual equities and on indexes. Therefore, one can compute put call ratios for equities and for indexes.
Below are the numbers for the trading session of April 05, 2010. The average trader/investor trades options on equities. Therefore the ratio of interest to analyze the market complacency is the Equity Put/ Call ratio.
The today's value of the equity put call ratio was 0.43. This is on the very low side of the recent few months historic range. With the look of an eye, the average is around 0.6, while the high side of the range is around 0.8. If the average is stationary, one would see a rise in this ratio. Since the rise of the ratio would mean buying puts, it would imply a retreat in the market or at least a halt in this market rise.
The today's reading of the ratio supports the hypothesis of a potentially very complacent market. Therefore it may be vulnerable to a retreat.
Ratios values:
Total Put/Call Ratio 0.79
Index Put/Call Ratio 1.55
Equity Put/Call Ratio 0.43
CBOE Volatility Index (VIX) Put/Call Ratio 1.83
Now we provide the details, starting with some background information, as it may be useful for those not familiar enough with put call ratios, and how they are used.
Put Call ratios are used by professional traders to help locate extremes in market sentiment. It is believed that when the market is complacent , the volume of puts traded in comparison to the volume of calls traded, is smaller than normal (The put call ratio is on the low side of a range). On the other extreme of the market, when it is retreating, the volume of puts with comparison to the volume of calls can reach a higher than normal extreme.
Calls and puts are traded on individual equities and on indexes. Therefore, one can compute put call ratios for equities and for indexes.
Below are the numbers for the trading session of April 05, 2010. The average trader/investor trades options on equities. Therefore the ratio of interest to analyze the market complacency is the Equity Put/ Call ratio.
The today's value of the equity put call ratio was 0.43. This is on the very low side of the recent few months historic range. With the look of an eye, the average is around 0.6, while the high side of the range is around 0.8. If the average is stationary, one would see a rise in this ratio. Since the rise of the ratio would mean buying puts, it would imply a retreat in the market or at least a halt in this market rise.
The today's reading of the ratio supports the hypothesis of a potentially very complacent market. Therefore it may be vulnerable to a retreat.
Ratios values:
Total Put/Call Ratio 0.79
Index Put/Call Ratio 1.55
Equity Put/Call Ratio 0.43
CBOE Volatility Index (VIX) Put/Call Ratio 1.83
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