can someone help me with this p/c ratio chart?

... but i am good at that! i used to know the answer, that's what hurts me. too much furniture store in the attack, i guess.



this is the widely watched $cboe p/c ratio chart:

http://stockcharts.com/h-sc/ui?s=$CPC...amp;a=150147800

now, it looks to me like the ratio should be FALLING as people get more bullish - as more dollar volume (is it a dollar volume?) goes into calls - since it is puts OVER calls and the denominator would be increasing.

Edited by humble1, 01 November 2008 - 02:57 AM.

The only way I ever use that is, put volume to look for possible bottoms. I would wait to go long for the time being. Rick

The chart is only one of an infinity of ways at looking at the data. I came up with that chart based on nothing more than I wanted another EOD confirming pattern recognition tool. I know zip about hedging with options, how they give sentiment hints, expiry week shenanigans, related volume, "smart" index option patterns, dumb equity plays, max pain strikes, etc etc. There are some VERY smart option guys here. BTW I put an SPX 2001 chart in linrom1's Chigago ISM thread, I think you'll like it

thanks, folks: i look forward to more replies/thoughts on the subject. please take a look my question and see if you can help me and see if the chart doesn't really look more like a call/put than a put/call - an inverse of what they say it is.

The equity put and call buyers look reactive. As prices fall they say, prices are falling, better buy some puts. And vice versa. This is not an inverse chart. It does look like equity option sellers do rather well, most of the time

okay, jack. well, that would explain it: using this sentiment indicator, go with the bullish trend not against it? in this case the sentiment is right, not to be bet against? do i have that correct, folks? so, at the bearish extremes they are more bullish, buying more calls (the ratio shrinks, since the calls are in the denominator)? that's the only way i see to read it if it is NOT an inverse chart.

Edited by humble1, 01 November 2008 - 05:34 AM.

okay, jack. well, that would explain it: using this sentiment indicator, go with the bullish trend not against it? in this case the sentiment is right, not to be bet against?

do i have that correct, folks? so, at the bearish extremes they are more bullish, buying more calls (the ratio shrinks, since the calls are in the denominator)? that's the only way i see to read it if it is NOT an inverse chart.

This is showing relative bullishness at tops and bearishness at lows. My understanding is that CPCE is not dollar weighted, it measures the number of puts and calls traded(front month I think). I also read this to suggest that equity investors have a permanent bias toward buying calls as the ratio is consistently under 1 (which would mean one put traded for every call). As the ratio drops it means there are fewer calls being purchased relative to puts. If there are 5 puts traded and 10 calls the ratio will be .5 indicating more bullishness relatively speaking versus a ratio of 1 (10 calls traded for every 10 puts) for example.

I could be mistaken but this is my understanding. Hope it helps.

so as the ratio declines there MORE calls being purchased relative to puts. by your own example 10/puts to 10/calls = 1. okay, now do more calls RELATIVE to puts. let's say 20 calls and keep the puts the same: MORE calls relative to the same amount of puts. we get 10/20 = .5. the ratio has dropped. now, look at the chart, look at 10/27. the ratio is lower, more calls, people more bullish. what say?

Edited by humble1, 01 November 2008 - 01:52 PM.

so as the ratio declines there MORE calls being purchased relative to puts.

by your own example 10/puts to 10/calls = 1. okay, now do more calls RELATIVE to puts. let's say 20 calls and keep the puts the same: MORE calls relative to the same amount of puts.

we get 10/20 = .5. the ratio has dropped.

now, look at the chart, look at 10/27. the ratio is lower, more calls, people more bullish.

what say?

You are right that there were more calls purchased relative to calls just before the 28th (looking at the raw data). I think it depends on the timeframe you are looking at. looking at the raw data vs looking at longer MA's. On a trending basis it tends to exhibit more call buying relative to historical averages at tops and more put buying relatively at lows. This can be seen looking at your 21MA. Certainly more art than science...

Looks somewhat similar to mid-April to me. Possible consolidation/1-3 day pullback then higher prices. I am curious to see if we see more aggressive put buying on any rally from here.

There are many versions of P/C, one if my favorites is Jason Goepfert's ROBO (retail buy to open p/c) it measure only opening transactions for purchases of 10 contracts or less "dumb money". http://www.sentiment...KLY/PC_ROBO.htm I'm not sure if the link will work but it is currently supportive of higher prices.

duh! a friend pm'd me and now i see it: the candlesticks are NOT the p/c, they are the SPY. HAHAHAHAHAHAHA ... i knew it was a dumb question!