L.O.B.O. PUT/CALL RATIOTM

(Large Only, Buy to Open)

WITH CALL AND PUT PURCHASES

Click here for chart


 

APPLICABLE TIME FRAME(S):  

INTERMEDIATE

 

UPDATE SCHEDULE:

Each Saturday morning by 11:00 AM EST, unless due to those instances when the OCC delays their reporting for whatever reason.  At those times, this data will be updated by 7:00 PM EST on the evening the data is released.

 

RECENT STUDIES:

03/04/13......Small traders aren't buying into this rally

 

EXPLANATION:

See the description of the ROBO Put/Call Ratio for a much more detailed description of put/call ratios.

 

Unlike the very smallest of traders that make up the ROBO ratio, the LOBO ratio is made up of only large traders, those trading 50 or more contracts at a time.  Granted, with low-priced options, even a small trader could fit into this category, but for the most part these reflect institutional-type traders.

 

Because of that, there is an added complexity to the interpretation of this ratio.  The ROBO ratio is pretty clear - when small traders are buying puts, then they're bearish on the market; when they are buying calls, then they're bullish.

 

With large traders, they could be buying puts not only to speculate on a decline, but more likely as a hedge against their existing positions.  So when we see a large rise in put buying, it could actually mean that these traders are so bullish that they have bought a large amount of stock, and need to hedge against that.  And when they're buying a large amount of calls, it could mean that they have sold or shorted stock and need a hedge against a runaway upside market.

 

So the underlying reasons for high or low put/call ratios differ from the ROBO ratio, but fortunately when we look at the chart it doesn't make much of a difference.

 

GUIDELINES:

On the chart, we show three indicators - the LOBO Put/Call Ratio, the percentage of total large-trader volume that went into buying call options, and the total large-trader volume that went into buying put options.

 

The guidelines are straightforward.  When any of the ratios move outside of the upper red dotted line, then we should look for the market to decline; when any move below the lower green dotted line, then we should look for the market to rally.

 

The lines are 1.5 standard deviations from the one-year average reading.

 

ADDITIONAL RESOURCES:

Options Clearing Corporation (http://www.optionsclearing.com/default.jsp)

 


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