The OEX 100 (big caps) was an early entrant in the index option
derby and was probably one of the most popular for a number of
years. Normally, the OEX put / call ratio exceeds 1.00 as larger
players use puts to hedge long equity positions, either as a genaral
strategy or for OEX baskets held long. It is unusual to see the
put / call ratio below 1.00 because the players are then net long
and unhedged in total. Having traded OEX options for so many
years, I keep an eye on the P/C ratio if only for old time's sake.
The ratio went below 1.00 with some consistency toward the end
of 2008 and stayed low well into the early part of 2009. Partly,
this no doubt reflected the rising cost of options and the fact that
long OEX baskets had been sold out, but I also concluded the
bigger players believed the bear market was ending. We have a
similar situation today, and again, I have concluded that the bulk
of the corrective action may have been taken.
I also watch the OEX P/C ratio against the CBOE individual
equities P/C ratio. I have noticed that there are cases when the
OEX P/C is a whopping 1.5 and the CBOE is just .50. More
often than not, the OEX put buyers have been right and the
market is toppy. So too when the OEX is below 1.00 and the
CBOE is slightly elevated, say above .60. The market at these
times is more likely to be sold out.
This type of comparison does not work all the time, and it
requires a bit of a guess as to when to pay attention to it. But,
I have to say I am usually comfortable with comparisons of
OEX put / call ratio chart. (Two looks).
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!