Put/Call Ratio

[Billy]

Ernst, Thanassis or any other options traders,

I have no competence to judge the dramatic drop in put/call ratio other than that it is usually bearish.
Any specialized comment or observation?
Billy

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[Brad]

I'll be interested in the views of the options traders on this, but did take a look to see what happened on Dec. 20, 2010, listed as the low on the chart.

SPY closed at $124.60 on that date, and then rallied about 9% in the next two months. Is the bearish interpretation due to the precipitous drop, or due to the low itself?

[Billy]

I'll be interested in the views of the options traders on this, but did take a look to see what happened on Dec. 20, 2010, listed as the low on the chart.

SPY closed at $124.60 on that date, and then rallied about 9% in the next two months. Is the bearish interpretation due to the precipitous drop, or due to the low itself?

This is from today's McClellan Market report:

"Quiet trading and narrow ranges are a sign of complacency, and so is the low Put/Call Volume Ratio numbers we have been seeing for the past several days. The 1st chart shows that ratio for the “all products” numbers published by the CBOE.

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I commented a few weeks ago about how the range of values had shifted for this ratio starting in August. The chart is annotated with the old range I had been using for years, as well as blue horizontal lines to designate the levels that constitute “high” and “low” levels now. Interestingly, all of the readings since the nearly 3% rally on Nov. 28 have been below the lower threshold line. Something has changed.

Interestingly, it is the index option volume that seems to be responsible. The 2nd chart shows the Put/Call Volume Ratio for just index options, which I should note also includes the options on ETFs tied to indices. Before 2005, the CBOE treated QQQ(Q) and SPY options among the equities group, but then rightly corrected that designation.

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The very low readings we are seeing now are back down to the level of the low we saw back on Nov. 18, before the ugly Thanksgiving week plunge. We also saw readings this low back in July, just ahead of the August ugliness, and on May 27-31, just ahead of a 6% decline in the SP500 during the first week of June. So we are seeing a sentiment condition that has been a setup for important declines in the past.

Whether the market can fit in an “important” decline during the remaining time between now and the bottom due Dec. 8-14 is an open question. It is also not certain that the Timing Model bottom signals which describe that time window will necessarily halt any decline that gets itself started. Given the current sentiment situation, it seems reasonable to conclude that if we get a McClellan Oscillator crossing back below zero on Thursday or Friday, that it would be worth going along with that signal and taking a short term bearish stance."

[Brad]

Thank you sir!

[ernsttanaka]

Sorry billy,


Only saw your post now.

I never follow put call ratios. Not sure if they have. A predictive value.

I watch via, skew (vertical and horizontal).

Btw hope all

Ernst