Option Markets Expect A Huge Rally

Option’s markets could be expecting a major rally in stocks going forward, according to Trader’s Narrative.

Trader’s Narrative: …measures of mood in the options market, like the CBOE (equity only) put call ratio as well as the ROBO put/call ratio are showing an eye popping amount of speculative call buying. There is no question that right now, option traders are throwing caution to the wind and positioning themselves for a major rally. History as a guide tells us they will be sorely disappointed.

Still, this other measure of options sentiment, also highlighted by Trader’s Narrative, remains far from extreme levels.


Also, if we then build our own Put/Call Ratio chart, we don’t quite see what Trader’s Narrative is worrying about in the first excerpt above. In fact it seems that Put volume has spiked relative to Call volume. One would argue that investors are increasingly buying hedges. If speculative buying has popped in any direction, it’s more in regards to bearish bets rather than bullish ones.

The data is very volatile in the short-term, thus Trader’s Narrative may not have seen the most recent CBOE data point. At the very least, from a broader perspective the chart below doesn’t show any kind of extreme when compared to the last past year. So sentiment actually still appears pretty tame by this measure, though feel free to prove us wrong.

Regardless, there’s a lot more detail on other sentiment indicators over at Trader’s Narrative. It’s worth a look.


(Tip via Abnormal Returns)

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