The CBOE Options Total Put/Call Ratio confirms the recent advance of the overall market. Investors are buying less puts as they believe that the market could move even higher. The daily chart below shows $CPC with a couple of moving averages. The 10-day SMA sharply turned down and is moving lower. The correlation coefficient between $CPC and $SPX the S&P 500 index is back to normal which is negative.
The daily chart below shows CPC, the CBOE Options Total Put/Call Ratio. CPC is increasing when investors start to get more bearish and want to protect their portfolio by buying more put options. The Total Put/Call Ratio has been sharply increasing in the past two weeks. Normally the correlation between the Total Put/Call Ratio and the S&P 500 is negative but notice how recently this correlation turned positive meaning they are both moving in the same direction, higher. You can see the correlation coefficient in the indicator window below the chart.
$CPC, the CBOE Options Total Put/Call Ratio is slowly advancing. $CPC is a sentiment indicator showing the Put volume relative to the Call volume. It is increasing when more Puts are trading than Call options. This means that investors are expecting a bearish development in the future. Also notice below the chart that the correlation coefficient to the S&P 500 index is -.20 and turning up. Normally the 20-period correlation coefficient is less than -.50.
$CPC, the CBOE total Put/Call ratio has been below its 200-day moving average for over three months. Since the beginning of 2014 it's been moving higher as investors want to protect their portfolios with buying more put options. As you can see below the chart, $CPC is mostly negatively correlated to the S&P 500 index.
The chart below shows $CPC, the total Put/Call ratio with the 10-day moving average. When $CPC is moving higher investors are buying more puts than calls and they have bearish bias. $CPC is a sentiment indicator and is mostly negatively correlated to the S&P 500 as you can see below the chart. $SPX, the S&P 500 index is in the background.
The chart below shows CPC, the Total Put/Call Ratio with a couple of indicators below that. The first one is TRIX a momentum oscillator similar to MACD. The Main difference is that TRIX is triple-smoothed and is calculated as follows:
The TRIX indicator below shows that it crossed above its signal line which is bullish for CPC but not as much tor the stock market. What it means is that options traders are increasingly buying puts. The correlation between CPC and S&P 500 is mostly negative as you can see on the third indicator.
The Put/Call Ratio is simply the Put Volume divided by the Call Volume:
Put/Call Ratio = Put Volume / Call Volume
The Put/Call Ratio can be calculated for individual securities or a large number of stocks or indexes or both. The Chicago Board Options Exchange (CBOE) has three popular Put/Call Ratios, the $CPCE is the Equity Put/Call Ratio, the $CPCI is the Index Put/Call Ratio and the $CPC is the Total Put/Call Ratio. The Total Put/Call Ratio often moves above and below the 1.0 horizontal line. Depending on market conditions the range of the Put/Call Ratio can change over time.
Investors are buying more puts to hedge against market weakness or bet on a decline. Calls are purchased to bet on market advance. When investors are extremely bullish the Put/Call Ratio reaches low levels and when they are extremely bearish it reaches high levels.
In this sense the Put/Call Ratio can be used as a sentiment indicator. It also can be used as a contrarian indicator. Extreme low levels on the Put/Call Ratio could be a sign of possible market decline and extreme high levels of Put/Call Ratio could be a sign of possible bullish reversal.
Currently $CPC, the Total Put/Call Ratio is on low level if we compare it to other lowest levels this year. This could be the sign of a short term bearish reversal.
See the chart below with the 10-day and 200-day SMA and with $SPX in the background. There is also a 1.0 horizontal line. The Correlation Coefficient shows that for the most part the correlation between $CPC and the S&P 500 is negative.