I was looking over the internet to find some interesting articles on the Put/Call Ratio based strategies. As of now, have just found out one:
1. Put/Call ratio in themselves are not very helpful in predicting the market direction. However, extreme values (compared with say 50DMA) may indicate a rise/fall in market volatility.
Addendum (March 28, 2009):
a. Usually Volume PCR is a more useful indicator during the day as it accurately reflects the ‘current’ market activity. OI PCR, on the other hand, is slightly out-dated, and may be skewed by long-tenor options as well as past trades (which may be deeply OTM/illiquid now).
b. PCR works as a contrarian indicator in the bear markets (when majority of the people are wrong). When the ratio reaches high levels, it indicates that there is already a lot of ‘protection bought’ by the market, and hence the chances of a crash are relatively lower. On the other hand, when the ratio becomes abnormally low, then it reflects the ‘euphoria’ and ‘complacency’ in the market.
It works exactly the reverse during the bull market (when majority is right). A low PCR indicates people expecting markets to go up, and it indicates that.
1. Put/Call ratio in themselves are not very helpful in predicting the market direction. However, extreme values (compared with say 50DMA) may indicate a rise/fall in market volatility.
Addendum (March 28, 2009):
a. Usually Volume PCR is a more useful indicator during the day as it accurately reflects the ‘current’ market activity. OI PCR, on the other hand, is slightly out-dated, and may be skewed by long-tenor options as well as past trades (which may be deeply OTM/illiquid now).
b. PCR works as a contrarian indicator in the bear markets (when majority of the people are wrong). When the ratio reaches high levels, it indicates that there is already a lot of ‘protection bought’ by the market, and hence the chances of a crash are relatively lower. On the other hand, when the ratio becomes abnormally low, then it reflects the ‘euphoria’ and ‘complacency’ in the market.
It works exactly the reverse during the bull market (when majority is right). A low PCR indicates people expecting markets to go up, and it indicates that.
No comments:
Post a Comment