Private Investment

• Behavioral Finance
• put-call ratio

no Articles

"Contrarian (?)" / put-call ratio at high level (1.45), last high was in Oct. 2014

Betting Against the "Crowd"
It is known that options traders, especially option buyers, are not the most successful traders. On balance, option buyers lose about most of the time. Although there are certainly some traders who do well, would it not make sense to trade against the positions of option traders since most of them have such a bleak record? The contrarian sentiment put/call ratio demonstrates that it does pay to go against the options-trading crowd. After all, the options crowd is usually wrong.

As often happens when the market gets too bullish or too bearish, conditions become ripe for a reversal. Unfortunately, the crowd is too caught up in the feeding frenzy to notice. When most of the potential buyers are "in" the market, we typically have a situation where the potential for new buyers hits a limit; meanwhile, we have lots of potential sellers ready to step up and take profit or simply exit the market because their views have changed. The put/call ratio is one of the best measures we have when we are in these oversold (too bearish) or overbought (too bullish) zones.

CBOE Put/Call Ratio Data
Looking inside the market can give us clues about its future direction. Put/call ratios provide us with an excellent window into what investors are doing. When speculation in calls gets too excessive, the put/call ratio will be low. When investors are bearish and speculation in puts gets excessive, the put/call ratio will be high.

Sentiment on 9th July 2015, as gauged by the put-call ratio, ended overly bearish at 1.45 This is the highest reading since October 13th of last year, which coincided with the low charted on the S&P 500 Index for the fourth quarter. When investors become as overly bearish as what the ratio is suggesting, equity prices are typically closer to a bottom than a top.

Recheck the comment as written on equityclock.com

Read more: http://www.investopedia.com/articles/optioninvestor/02/052102.asp#ixzz3fhDRLQzT