No Love

The S&P 500 has now rallied over 8% from the lows and there is still put buying. What will it take to get the call buyers out?

9 comments:

Anonymous said...

Are you crazy? There is tons of call buying right now.

Tsachy Mishal said...

Where?

Anonymous said...

CBOE equity only

Today so far the ratio was 0.51, last half hour was 0.45!

I know you look at the total ratio and not equity only, but equity only has far higher predictive value.

Tsachy Mishal said...

I have found the total to be a better predictor. Even ignoring that how do you explain the ISE number?

Anonymous said...

Today is a gigantic short squeeze. Those should almost always be faded.

Market Owl said...

Maybe the ISE options traders are smartening up. They were mostly buying calls from July 1 to July 9. Now they are buying puts now that we are 80+ points up from the bottom.

Tsachy Mishal said...

Good point but at that point every other bit of evidence was pointing the other way.

We are very extended in the ultra short term so I am not advocating going long. But in my opinion I don't see a reason to go short either. If the market rallied through expiration the market would be max overbought and that is a point where I think it would make more sense.

PJ said...

Put-call ratios haven't been much of an indicator for the last month, it seems they're similar every day. Heavy put buying on ETFs and indices, neutral ratios on equities. But if the puts are on inverse ETFs, they're actually calls. It may be that options buyers are playing the decay in inverse ETFs. I wonder if the total ratios are now misleading and put-call sentiment is actually fairly neutral.

Similarly, though the newsletter timers are extremely bearish, surveys of institutional money managers show high bullishness. Who's more important in the market? With retail customers withdrawing from the market, institutional managers may be an increasing share of trading.

My view is that we've seen a steady cycle of coordinated short squeezes by the banks whenever sentiment got too negative. Shorts have been burned several times by this in the last 3 months and are "smartening up" as Market Owl says. More of them are holding their positions through the squeeze, or covering shorts and replacing the position with put options.

Negative data is coming soon, and new sellers will emerge. I don't know how far this rally goes, but I don't believe the indicators are that helpful at the moment.

Tsachy Mishal said...

Hedge fund are the most important actors in my opinion as their shifts in exposure are tremendous. Even if their exposure is up in the past few days it is still low.