Options Sentiment at Extremes

First, let me congratulate the algobots, hedge funds and prop desks – who are all trading with each other and pushing the market higher and higher – for cracking the 4 billion volume share mark.  It was touch and go, but we were able to get over the hump on the last few ticks of the day, otherwise it would have been three days in a row of NYSE Composite volume printing sub 4 billion shares.  In fact, the past three trading days have been the lightest three volume days of the year.

No problem for the bulls, however, as volume is now irrelevant.  Volume was anemic during the first few days of March as well.

Volume, however, has been high in the options market.  What have options buyers been buying?  Why, they have been buying calls.  Big time.  From Trader's Narrative.

Option traders continue to press the upside, oblivious of risk. The equity only ISE sentiment index hit 276 today. This implies that retail traders are buying calls vs. puts at an almost 3:1 ratio!

To say that this is rare is an understatement. While we’ve only had this metric for a little over 4 years, out of 1070 data points, only 2 other days showed a bigger daily call binge: June 15th 2007 (280) and October 8th 2007 (279).

The last two times the call-put ratio was this high, the market was down 10% six to eight weeks later.  It marked the top of the bull market.

That does not mean the end of this bull market is in sight.  I think we will be higher over the next 12-24 months.  However, there is virtually no fear right now, and the market is rising on lower and lower volume, being pushed up by guys who will vanish at the drop of a hat.

But for now, that does not matter.

 

Comments

[dacian]

"But for now, that does not matter."

Agree; I have 1700 as target for S&P (very expensive); but 2 more years? I think it will be quicker than that, the market players want big money quickly, so no reason to wait 2 years for the greed to be satisfied; we can do it in 6 months I guess...

[dacian]

"I have 1700 as target for S&P..."

I borrowed that from Biriny; the guy was calling 14000 on the Dow in 2007 because the FED will save the credit markets; I wonder if he bought all the way down...

[psychodave]

"1700 ... we can do it in 6 months"
@dacian
lol.
Nicely sarcastic jump aboard the bandwagon.

Wish I could link to one of Toro's acerbic roasts of Dennis Kneale in homage to your two posts.