Option traders are acting irrational.
On March 30, the CBOE equity put/call ratio fell to the lowest level of 2015.
Just three days later (April 2), the put/call ratio soared to the highest level since October 2014.
In fact, the chart shows a near perfect ‘V’ with all three touch points representing some sort of extreme.
Sunday night’s Profit Radar Report published a similar chart and noted that: “The equity put/call ratio just spiked to the highest level since last October. Option traders are expecting lower prices. As the chart shows, usually when that’s the case, the S&P 500 does the opposite.”
The S&P 500 cash index (NYSEArca: SPY) doesn’t fully reflect the volatility since Friday’s job report, but the S&P 500 futures spiked from their 2,043 low on Sunday to 2,075 today.
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The S&P 500 may or may not be done punishing bearish option traders, but the volatility of the put/call ratio cautions that it may not take too much of a rally to work off last week’s bearish (bullish for stocks) put/call extreme.
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.
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