A quick chat about #Options and the put/call ratio.
I've gotten some questions today about the elevated put/call ratio. Here's the problem with #OptionsTrading - there are many different put/call ratios that one can use, and the one being discussed isn't that useful (1/
The graph above shows two different put/call ratios. The yellow line is the Cboe equity put/call ratio, which is indeed at a high.
Problem is, that only shows equity #Options on one exchange. The biggest exchange, but 1 of 16. (2/
The white line is the put/call ratio for all #Options across all exchanges. It is a much more comprehensive measure. Modestly elevated, but hardly noteworthy.
Because the daily numbers are volatile, I prefer to smooth them with 21 day moving averages (magenta, green) (3/
Bottom line, put/call ratios can be very useful for #OptionsTrading, but you need to be careful which data you're using.
I've found them to be useful contrarian indicators, but more explanatory than predictive (4/4)
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I watched @MelissaLeeCNBC's discussion with @timseymour and @GuyAdami on @CNBCFastMoney. Blurting "naked short" is hardly evidence that a conspiracy of #NakedShorting exists. It's illegal, and as a result most firms go to great lengths to prohibit their customers from it (2/)
Obviously because something is illegal and discouraged doesn't mean that it isn't going on somewhere. I can't prove that #NakedShorting isn't going on. But I suspect that some are confusing naked short sales (illegal) with naked options writing (legal but risky) (3/)