This is a rebroadcast of OICs webinar panel. In this deep dive discussion, Frank Fahey (representing...
Option Gauges Spike, Suggesting a Short-Term Low
08/05/2014 8:00 am EST
Steve Smith of Minyanville.com discusses the options gauge spike that occurred last week and what it suggests for options traders about stocks this week.
The main option gauges—the Volatility Index (VIX) and the put/call ratios—spiked sharply last week, suggesting stocks might have put in a short-term low.
The VIX surged some 35% to its highest levels in four months. But a more telling flight for portfolio protection was the surge in the put/call ratio. I recently noted that the low VIX was a merely a reflection of low realized volatility and the fact that futures had maintained a premium suggested there was an expectation for an increase in volatility with an accompanying sell-off—the upshot being that there was not widespread complacency.
Likewise, the put/call ratio, while relatively low for equities, had remained robust on the indices, indicating money managers were maintaining broad market protection.
Last week, a few of the put/call ratios on both the equity-only and index products jumped to yearly highs. The ISEE reading (which is a call/put) dropped from its 20-dma of 200 down to 45, its lowest reading in over a year.
This type of spike and rush for put protection can act as a safety net and might provide a short-term low and prevent the decline from accelerating too quickly or deeply.
By Steve Smith, Contributor, Minyanville.com
Related Articles on OPTIONS
Roma Colwell-Steinke of CBOEs Options Institute joins Joe Burgoyne in a conversation about strategy ...
This is a rebroadcast of OIC’s webinar panel where you can take a deep dive into options Greek...
Host Joe Burgoyne answers listener questions about mini-options and investor resources. Then on Stra...