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Option Gauges Spike, Suggesting a Short-Term Low
Recent action in the options market implies that the major averages may not fall very far, if at all.
Steve Smith    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

The main option gauges, the VIX (INDEXCBOE:VIX) and the put/call ratios, spiked sharply last week, suggesting stocks might have put in a short-term low.

The VIX surged some 35% to its highest levels in four months. But a more telling flight for portfolio protection was the surge in the put/call ratio. In a recent article, I noted that the low VIX was a merely a reflection of low realized volatility and the fact that futures had maintained a premium suggested there was an expectation for an increase in volatility with an accompanying sell-off -- the upshot being that there was not widespread complacency. 

Likewise, the put/call ratio, while relatively low for equities, had remained robust on the indices, indicating money managers were maintaining broad market protection.

Last week, a few of the put/call ratios on both the equity-only and index products jumped to yearly highs. The ISEE reading (which is a call/put) dropped from its 20 dma of 200 down to 45, its lowest reading in over a year.  

This type of spike and rush for put protection can act as a safety net and might provide a short-term low and prevent the decline from accelerating too quickly or deeply.

Twitter: @steve13smith

For more from Steve Smith, take a FREE 14-day trial to OptionSmith and get his specific options trades emailed to you along with exclusive access to his full portfolio. Learn more.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Option Gauges Spike, Suggesting a Short-Term Low
Recent action in the options market implies that the major averages may not fall very far, if at all.
Steve Smith    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

The main option gauges, the VIX (INDEXCBOE:VIX) and the put/call ratios, spiked sharply last week, suggesting stocks might have put in a short-term low.

The VIX surged some 35% to its highest levels in four months. But a more telling flight for portfolio protection was the surge in the put/call ratio. In a recent article, I noted that the low VIX was a merely a reflection of low realized volatility and the fact that futures had maintained a premium suggested there was an expectation for an increase in volatility with an accompanying sell-off -- the upshot being that there was not widespread complacency. 

Likewise, the put/call ratio, while relatively low for equities, had remained robust on the indices, indicating money managers were maintaining broad market protection.

Last week, a few of the put/call ratios on both the equity-only and index products jumped to yearly highs. The ISEE reading (which is a call/put) dropped from its 20 dma of 200 down to 45, its lowest reading in over a year.  

This type of spike and rush for put protection can act as a safety net and might provide a short-term low and prevent the decline from accelerating too quickly or deeply.

Twitter: @steve13smith

For more from Steve Smith, take a FREE 14-day trial to OptionSmith and get his specific options trades emailed to you along with exclusive access to his full portfolio. Learn more.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Daily Recap
Option Gauges Spike, Suggesting a Short-Term Low
Recent action in the options market implies that the major averages may not fall very far, if at all.
Steve Smith    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

The main option gauges, the VIX (INDEXCBOE:VIX) and the put/call ratios, spiked sharply last week, suggesting stocks might have put in a short-term low.

The VIX surged some 35% to its highest levels in four months. But a more telling flight for portfolio protection was the surge in the put/call ratio. In a recent article, I noted that the low VIX was a merely a reflection of low realized volatility and the fact that futures had maintained a premium suggested there was an expectation for an increase in volatility with an accompanying sell-off -- the upshot being that there was not widespread complacency. 

Likewise, the put/call ratio, while relatively low for equities, had remained robust on the indices, indicating money managers were maintaining broad market protection.

Last week, a few of the put/call ratios on both the equity-only and index products jumped to yearly highs. The ISEE reading (which is a call/put) dropped from its 20 dma of 200 down to 45, its lowest reading in over a year.  

This type of spike and rush for put protection can act as a safety net and might provide a short-term low and prevent the decline from accelerating too quickly or deeply.

Twitter: @steve13smith

For more from Steve Smith, take a FREE 14-day trial to OptionSmith and get his specific options trades emailed to you along with exclusive access to his full portfolio. Learn more.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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