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Make Up Your Mind


For the third consecutive day, the total put/call ratio from the CBOE has been over 0.99. Over the past 10 years such a thing has happened only 14 other times. Looking at those 14 occurrences, the return in the S&P 500 20 days later was 4.1% with all 14 positive.

Now the bad news...the high ratios are being driven by index option volume, NOT equity option volume. Over these past three days, the index put/call ration has been over 1.95 every day. We've seen a string of 3 consecutive days of the index put/call ratio being above 1.95 on 16 different occasions. It was short-term bullish - the S&P was higher the next day nearly 70% of the time. However, 30 days later the S&P showed an average return of -3.5% and only 1 out of the 16 was positive.

Adding to today's potential bullishness...since the bull began in 2003, Tuesday of expiration week has been positive 67% of the time. Wednesday has been positive only 38% of the time, however.

My takeaway from some of the conflicting numbers above...if we're going to see strength, it should be today. The positive historical tendencies begin to die out after today, especially once expiration is past. With the futures already doing well pre-open, we may see probes to fill the gap be met with buying pressure.
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