Info!! The Equity Put/Call Ratio: Why Thought Matters

Lately I've seen a diversity of observations virtually stock marketplace sentiment, ranging from bullish to bearish to neutral.  My favorite mensurate of stance is the put/call ratio for all private stocks amongst listed options.  This excludes index selection volume.  Above nosotros run into a five-day moving average of the equity put/call ratio (red) plotted against the SPX.  (Raw information from e-Signal).

In general, we've tended to run into elevations of the ratio at relative marketplace lows.  Over the concluding few weeks, the ratio has dramatically declined every bit we've percolated to novel highs.  We are currently inward a zone where traders are bullish inward their options-related behavior.

Since the get-go of 2014, stance has been an of import say for frontward marketplace returns.  If nosotros precisely postulate a median dissever of the daily data, nosotros notice that when traders convey been relative bullish (N = 160), the side past times side 10 days inward SPX convey averaged a loss of -.28%.  When traders convey been relatively bearish (N = 160), the side past times side 10 days inward SPX convey averaged a hit of 1.18%.  In other words, if yous followed the stance herd together with bought the marketplace when traders were bullish together with sold when they were bearish, yous lost pregnant money.  Essentially all the market's returns convey come upwards from fourth dimension periods when traders did non believe nosotros were going to larn proficient returns.

There's an of import lesson there.

Further Reading:  The Index Put/Call Ratio
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