Gauge investors sentiment
The buying and selling activity for puts and calls can be used to help gauge investors sentiment in the market. The put/call ratio measures the relationship between the numbers of puts being bought versus calls being bought. High put/call ratios are often indicative of excessive pessimism and thus of large amounts of money on being at the "sidelines."
Conversely, low put/call ratios indicate a point at which there is so much optimism that very little money is left to push the stock or index higher. A contrarian investor or the behavioral finance followers believe that when everybody is fully invested there will be no further purchasing power. At this point, the market is at a peak. On the other hand, when people predict a downturn, they have already sold out, at which point the market can only go up.
Normally when the market hits new lows investors tend to buy puts for protection or calls if the market reaches new highs. Therefore following the option market will give additional edge of information about the general market condition.
Our Options area contain the following sections and indicators:
Call/Put Ratios |
Put/Call Ratios |
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