Going into OPEX last week options traders had been favoring puts over calls
at the widest margin since the bear market bottom in March 2009. During the
volatility of OPEX, the CBOE equity-only put/call ratio spiked even higher
than the previous week. As I mentioned in my past
notes, I typically don't give much weight to sentiment surveys in the conventional
sense because traders vote with their wallets and not their mouths. The put/call
ratio can offer more practical insight into which posture they are actually
carrying.
I tend to gravitate towards data series at the extremes because it washes
out the noise. The below chart was constructed with the weekly CBOE equity-only
put/call ratio. However, I hid the actual data series and highlighted its rate
of change (ROC). As you can see, the ROC over the past few weeks is historically
extreme.
Interestingly, when presented as a ROC metric - it exhibited the greatest
change since 2004; the time period in which the market digested uncertainty
in a sideways fashion as the Fed embarked on removing the historic accommodative
monetary policies.
Although I am an active trader, I have always taken a broad perspective when
approaching the markets. I respect the Big Picture and attempt to place each
piece of information within its appropriate context and timeframe. I have found
that without this approach, there is very little understanding of ones expectations
in the market and an endless potential for risk.
I am not a stock picker - but trade the broader market itself in varying timeframes.
I want to know which way the prevailing wind is blowing, where the doldrums
can be expected and where the shoals will likely rise. I will not claim to
know which vessel is the fastest or most comfortable for passage - but I can
read the charts and know the risks.
I am not a salesperson for the market and its many wares. I observe it, contextualize
its moving parts - both visible and discrete - and interpret.
I practice Market Anthropology - Welcome to my notes.
Erik Swarts is not a registered investment advisor. Under no circumstances
should any content be used or interpreted as a recommendation for any investment,
trade or approach to the markets. Trading and investing can be hazardous to
your wealth. Any investment decisions must in all cases be made by the reader
or by his or her registered investment advisor. This is strictly for educational
and informational purposes only. All opinions expressed by Mr. Swarts are subject
to change without notice, and the reader should always obtain current information
and perform their own due diligence before making any investment or trading
decision.
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