Options Speculation Index
APPLICABLE TIME FRAME(S):
INTERMEDIATE
UPDATE SCHEDULE:
Weekly
REPORTING DELAYS:
None
EXPLANATION:
The Options Speculation Index takes data from all the U.S. options exchanges and looks at opening transactions.
We total the number of transactions with a bullish bias (call buying and put selling) and also the number of those with a bearish bias (put buying and call selling).
The Index is a ratio of the total bullish transactions to the total bearish transactions.
GUIDELINES:
The red and green bands on the chart are 2 standard deviations from the one-year average of the index.
Like most other put/call ratios, this is a contrary indicator, so when we see excessive speculative activity (i.e. the indicator moves outside of the upper red trading band), it means that traders are very confident of a rising market, and we usually see just the opposite.
When we see too much risk-aversion and the indicator moves below the lower green trading band, then we're at a pessimistic extreme and we typically see a market rebound shortly thereafter.
ADDITIONAL RESOURCES:
Options Clearing Corporation (http://www.optionsclearing.com/default.jsp)
© 2009 Sundial Capital Research, Inc. All Rights Reserved.