Get ‘em while they’re hot

5-day equity put:call is at max-sell level and won’t be here for long:

Source: indexindicators.com

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The last 6 months are still similar to February – July 2007, with this dip looking like July.

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3 thoughts on “Get ‘em while they’re hot

  1. Babak over at Trader’s Narrative (http://www.tradersnarrative.com/sentiment-overview-week-of-january-8th-2010-3451.html) has a good explanation for the drop in volatilities:

    Again, I’m not sure if this is a full explanation but it is something to consider. There is always a portion of the investment community that requires yields and when interest rates are this low, selling covered calls suddenly becomes very popular as there are no viable alternatives. The basic laws of supply and demand take over as the sale of calls (and puts) pushes down their prices and therefore, volatility.

  2. Sure, but that dynamic is always at play, and rates have been extremely low for over a year. If those sellers perceived more risk in their strategy, they would demand higher prices for options.

    Babak points out that the VIX itself is a poor timing vehicle for market tops. The put:call ratio is not, since regardless of the price paid for options, it reflects only the relative appetite for puts vs. calls.

  3. Yes agreed. I didn’t mean that VIX was a good market timing tool or anything. I just wanted to point out his theory, which I find credible.
    Another big up day, though. When no news or good news, the market jump. Extremely bad news and the market barely declines. That’s been the trend for the past month and shows that bullishness is still extreme.

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