Reports from various media sources look like this:
Index Calls: 85,786 Equity Calls: 687,000
Index Puts: 136,000 Equity Puts: 469,000
Interesting information - but what does it mean? Is that a lot of calls? Is that a lot of puts?
THE ANSWER IS: It depends on when it happens. The "normal" ratio changes over time.
QTT provides a graphic representation of the put call ratio for index and equity options.
The qraphics measure the put-call ratio's deviation from its normal expected ratio for that 1/2 hour of market activity.
Above the line - more calls than normal -too many bulls
Below the line - more puts than normal - too many bears
These charts do an excellent job of measuring the current market sentiment. Quoting from the Barron's article:
"The market sentiment theory, simply put, contends that when the majority of investors are bullish, a top is reached. (If most are really bullish, they've already bought their stock - who's left to buy from them?) Conversely, if the majority is bearish, that's the bottom, because most investors have already done their selling. It's a contrarian view of the market - when most people are bullish, the averages should go down; when most are bearish, they should rise. And it's a theory that, I maintain, is equally valid for the short-term (days) and quick-term (hours) as it is for the long-term (years) and intermediate-term (months)."
Predicting the market on a short term basis can be difficult. With QTT you will know what others are doing in the market. It gives you a quantitative measure of what the majority is doing right now. Together wilth your own timing tools you should know whether to be a buyer on weakness or a seller into strength.
Note: At QTT we use indicators that lead the market - not follow the market
The activity in the options occurs BEFORE the market moves - the sentiment readings tend to get overbought(excessive call activity) or oversold(excessive put activity) prior to market moves.
The equity options tend to stay overbought or oversold longer before the market moves - the index options tend to forcast market action more quickly.
Now Check out the archived charts to see how they work!
