The Chicago Board Options Exchange publishes a daily report detailing open put vs. call option positions of traders. Since this represents bets made on stock prices rising vs. falling in the near future, it’s an interesting gauge of sentiment.
Today I pulled this data since 2004 from the CBOE’s website, and plotted the 200-day simple moving average (to smooth out the volatility).
As you can see below, the put/call ratio’s 200-day SMA is at a multi-year low – at 0.5, that means twice as many options are bullish as bearish:
Investors are making more one-way bets these days than they have in awhile.
Of course this bullishness is not a guarantee that markets will crash tomorrow. But it is another data point that indicates sentiment is probably a bit too excited right now.
Markets never go in a straight line – and even though this market HAS been going in a straight line, it’s all the more reason we’re likely to see at least some sort of reversal soon.
Big hat tip to Steve Kendall and Steve Hochberg for keeping a close eye on this ratio in their excellent EWI newsletter. You can check out a recent guest article by these guys about trading volume, and what it says about investor confidence here.