I see some hedging demand in the options market.
The ratio between Index puts and calls doesn’t get much higher than this. The CBOE Index Put/Call Ratio is elevated at 1.86, indicating probable hedging in the options market.
To be sure, here is the index put volume compared to index call volume.
Total options volume is relatively low for 2020, however.
But, right at its long term average.
The CBOE Equity Put/Call Ratio shows us the relative volume of individual stock puts and calls. Equity call volume was extremely high on June 8th, and has since mean reverted. I considered it to be very speculative, since call options are mostly traded for upside speculation in the underlying stock.
I pointed out before that speculative call volume reached an extreme high level, which was a contrary indicator.
Indeed, the S&P 500 index peaked with the peak in speculative call buying.
The decline in the S&P 500 so far has only been -7%, and it started June 8th. It remains about -6% from its high.
The options market doesn’t see a lot of hedging near the stock market peaks, but it sure does after the market trends down.
The S&P 500 tapped the 200 day moving average last week, but is trying to trend above it. Today was a good start, if it can hold the line.
For those who like the concept of mean reversion, here’s your sign.
This market has impressive resilience, but we never know the next -5% or larger down day is coming.
Well, I may not know for sure, but I know when the odds are stack in our favor as I showed in “If we’re going to see a second leg down, this is where I think it will start.”
For now, expected volatility contracted nearly -9% today, so the options market believes we’ll see less range over the next 30 days.
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