Equity Put/Call Ratio Reaching Extremes?
Why can't you just let a guy have a little fun?
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"Did you see that the equity put/call ratio (21-day average) is at one of its lowest levels in years? Only January 2004 was worse than now. Should be approaching a good time to bet on a decline here."
Yes, I see that, BUT there is one very important distinction, and that is the makeup of that ratio.
In January of this year, the CBOE finally re-classified QQQQ option volume as "index" volume instead of "equity" volume as they had been doing (despite the fact that they had considered SPY and DIA options as "index" volume all along - go figure). Due to the fact that QQQQ option volume is often significant, and is skewed heavily to the put side, it has had an effect on the equity put/call ratio.
If you try to compare the equity ratio now to where it was a year ago, you're not comparing apples to apples, more like apples to pears. The equity ratio will have a considerably lower trading range now than it did before - not because traders are more optimistic, but because of a simple change in the construction of the index.
I've kept a separate equity ratio for years that backs out QQQQ options, so we can accurately compare current readings to historical ones. And right now, the 21-day average of that data is on the lower end of its range, but nowhere near as extreme as it was in January 2004, or even January 2005 for that matter. I would classify it as perhaps mildly bearish for the market, but not enough reason to generate any aggressive positions
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