Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
Option Call Buyers Got Served. What’s Next?
www.investing.com/analysis/option-call-buyers-got-served-whats-next-200527761
Option Call Buyers Got Served. What’s Next?
By Dr. Arnout ter Schure | Jun 15, 2020 02:38PM ET On May 21, I reported on the rather low equities only put/call ratio ($CPCE, EO-PC). See my article here.
Based on historical data, I found downside risk outweighed upside reward. The dotted red vertical line in Figure 1 shows May 21.
Figure 1. Daily Equities Only Put/Call ratio
Fast forward, and the S&P 500 topped on June 8 at SPX3233 with an OE-PC ratio of 0.37. Its lowest reading since 2010. Like in late-2019, the S&P 500 had rallied 10% since and lost almost all those gains over the last four trading days. Indeed, the risk/reward ratio was not favorable in late-May.
What is most surprising is the speed at which the OE-PC ratio dropped. It recorded its third-highest reading in history on March 12, and three months later its third-lowest reading in history. The 10-day Exponential Moving Average (10d EMA) of the OE-PC, see Figure 2 below, shows that historically a move from greater than 0.85 to less than 0.50 took at least a year (red boxes). Now it took only three months (blue boxes). Hence, the extreme shift in sentiment (from extremely Bearish to extremely Bullish) was unprecedented, which leaves little room for a fair historical comparison. But we’ll have to work with what the market gives us.
Figure 2. 10-Day Exponential Moving Averages of the Daily Equities Only Put/Call ratio
Namely, with only four occasions where the 10d EMA bottomed “directly” less than 0.50 after peaking above 0.85, and only one other time where the 10d EMA bottomed below 0.45 (mid-April 2010), the pickings are slim. The latter may, therefore, be most relevant to today’s situation. Back then, the S&P500 saw a two months’ long 17% correction before moving higher for another year and topping out before a ~22% correction, which erased almost all those prior-year gains.
Corrections are often choppy affairs with lots of twists and turns, fast drops, and even quicker rallies, erased within a matter of days. For the current market, my Elliott Wave analyses suggest we will see a retrace back to ideally SPX3125-3180 before the next leg lower. See Figure 3 below for the longer-term bullish path I am tracking for the S&P 500.
Figure 3. Short-term Elliott Wave Count for the S&P 500
Related Articles
Can Amazon's $4Billion AI Bet Be the Next Growth Catalyst for the Tech...
By Günay Caymaz - Sep 26, 2023
Amazon has made a significant investment in Anthropic, a major player in the AI sector The company's core business, retail, remains its strongest pillar, supported by its thriving...
Walmart Shines as Dollar Tree, Dollar General, Big Lots Stumble
By Kate Stalter - Sep 26, 2023
Walmart's ability to attract a broader customer base and focus on groceries has contributed to its strong performance versus other discount retailers. Analysts expect Walmart's...
Is the S&P 500 Still on Track for the 4270s?
By Dr. Arnout ter Schure - Sep 25, 2023
16
Two weeks ago, see here, we found for the S&P 500, using the Elliott Wave Principle (EWP), “Our preferred scenario is for [a] rally to around $4490+/-10, which it achieved today,...
Option Call Buyers Got Served. What’s Next?
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.