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Why Is the Put-Call Ratio (Fear Gauge) Higher Than In The Lehman Collapse Of 2008?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The rising fear may reflect a shift in sentiment from faith in the omnipotence of central banks to skepticism.
By at least one well-known measure of sentiment, the level of fear in the stock market now exceeds the fear triggered by the collapse of Lehman Brothers in September 2008. Lehman declared bankruptcy on September 15, 2008, unleashing a cascade that soon threatened to take down the entire global financial system.
There is no comparable event--or level of fear--other than the Great Crash of 1929.
Thus it is extraordinary that yesterday's CBOE put-call ratio of 1.53 exceeded the put-call ratios of the 2008 global financial meltdown, which topped at 1.52.
What is the put-call ratio? Here is the standard definition: The Chicago Board Options Exchange's (CBOE) put/call ratio (or put–call ratio, PCR) is a technical indicator that reflects investors' sentiment. The ratio represents a proportion between all the put options and all the call options purchased on any given day.
Puts are options that increase in value as stocks decline. Calls are options that increase in value as stocks rise. So if punters reckon the market will fall, they buy more puts (bets the market will drop) than calls (bets the market will rise).
There is no one ideal measure of sentiment. Participants buy options to protect or hedge their portfolios as well as to speculate on market moves, so the put-call ratio reflects a wide range of motivations and emotions. Nonetheless, it serves as a rough-and-ready thermometer of participants' fear and panic.
Anyone can download the CBOE put-call ratio data from November 1, 2006 to the present on the CBOE website and display it in an Excel spreadsheet.
If you sort the 2,003 records from highest to the lowest, you find that the only days in that time period where the put-call ratio exceeded the Lehman collapse and yesterday, October 13, 2014, are three days in early 2007, when the first indications that the wheels were coming off the subprime mortgage market and the housing bubble hit the news. (Those three days registered the only PCRs above 1.53: 1.61, 1.65 and 1.68.)
A mere 28 of those 2,003 days registered put-call ratios of 1.40 or higher. Only 12 days registered PCRs of 1.50 or higher. So clearly, the current level of fear is noteworthy.
What has spooked punters to levels not seen since the global financial system was tottering in October 2008? Are the current set of global risks really equivalent to the implosion of the entire global financial system? Punters seem to think so.
Perhaps what is different from 2008 is the constellation of global risks, which now include a deadly viral epidemic (Ebola) and geopolitical conflicts as well as a softening global economy.
The rising fear may reflect a shift in sentiment from faith in the omnipotence of central banks to skepticism. After all, if central banks can't guarantee markets will loft ever higher, then what is keeping them at current levels? The usual answers-- corporate profits and future earnings--are contingent on the global economy, which appears to be rolling over into recession or stagnation--not the ideal set-up for higher future profits.
I also wonder if the current spike in fear also reflects a new skittishness, as if participants are keenly aware the whole contraption is shaky and so they are primed to sprint to the exits now rather than risk being crushed in the mob.
There is some irony in this nervousness, for if central banks hadn't been so obsessed with levitating markets higher for the past 6 years by hook or by crook (ahem), perhaps markets wouldn't be so fearful of a collapse.
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Could it beeeeeeee.
SATAN !!?
http://www.youtube.com/watch?v=8U1Jv5JoxaM
Here is my guess...
Less chimps trading some options program they purchased for $5000 at a Robert Kiyosaki conference.
Looks like an upward parallel channel on the S&P (cash) starting at the close yesterday.
Expect a higher high today for it to complete five waves in it.
But that means this upward correction is over today and a massive, epic, ugly, stupendous, huge, terrible, nasty, did I say ugly implosion starts today
Look for a high of about 1902 on the S&P today
"By at least one well-known measure of sentiment, the level of fear in the stock market now exceeds the fear triggered by the collapse of Lehman Brothers in September 2008. Lehman declared bankruptcy on September 15, 2008, unleashing a cascade that soon threatened to take down the entire global financial system."
What is this ""Market"" of which you speak?
Rich Dad, Day-Trader Dad.
Doubling down on a hard 16 - hit me.
Last time Chucky was channeling a CFR & Rand Corporation member
Maybe he's in contact with higher powers now
No need to bring Obamao into this...
Looks like the dead cat is about to be killed again.
so sell this rip?
*sniff* *sniff* boy, the stench is really starting to seep into the markets now...
I would.
I'm not in the market anyways, but thats my advice.
Instead of the motto on our currency..."In God We Trust" we are now a country of "Pump and Dump" and crush the little guy at first chance. Can hardle wait for "Revenge of the Muppets". I feel like I am living through an early 20th century text book. BAD BAD STUFF IS BREWING. I use to be a dyed in the Wool Capitalist....that is dead.
"I use to be a dyed in the Wool Capitalist....that is dead. " -- yes, since 1913. Full detachment of the eCONomy and money from reality occured in 1971.
Reagan restored a lot of integrity to the country...Clinton and Bushes lost it and Obama has wiped out any sense that the playing field is level. Investment Banks with no backstop and no shareholders beyond partners were cautious....now they are just a cartel of criminals...pure and simple. The Rothschilds wish they had what Goldman et al have. As for early industrialists they created actual companies doing stuff...we have money movers wanting 2/20when they are 25 years old and a rescue when they explode!
"Reagan restored a lot of integrity to the country..." -- LMFAO!!! Yes, yes "trickle down" eCONomics...
LOL!!! Look, don't piss down my back and tell me it's raining.
I will give Reagan some credit for actually putting bankers in jail when they tried this crap (mortgage/loan fraud) the first time.
"reagan restored a lot of integrity to the country"
Please, I wish the red team would get over reagan. It annoys the shit out of me to hear republicans brag about being 'the party of reagan'(almost as bad as the party of lincoln). It was the reagan admin that started the whole 'deficits don't matter' nonsense. He also ramped up the unconsitutuional 'war on drugs'. He also campaigned on getting rid of the dept of education, and guess what? not only did he do NOTHING to get rid of it, but its budget grew every single year he was in office. He raised the national debt by appalling amounts, most of it on wasteful 'defense' spending, and soon to be obsolete toys for us to threaten the world with. In many ways, reagan is the worst modern president, since he ran on a policy of small govt, and less govt in our lives, and once he had pulled the wool over the countries eyes, he went and did the exact opposite. He was just another progressive, cut from the same cloth as both bushes and clinton.
The harder they come, the harder they fall...
Because the vast majority of honest folks (even the majority of useless paper-pushers on wall street) did not think that The Fed, their primary dealers, and their puppets in D.C. as well as the pentagon would push moral hazard to this extreme. over 4 trillion dollars printed to generate faux GDP to further line the pockets of the club (bilderbergs etc.) while adding very little of real fucking value to the real economy.
Tick fucking tock. No global paradigm shift ("turning" if you will) ever occurs peacefully...
hedge accordingly.
Our programming prevents us from leaving the table before licking the plate. One more time the masses will plead, "We never saw it coming." Bring it on.
God it makes me want to beat someone to get my tax dollars back
Puts, bitchez!!
Because everybody knows in their hearts that it's overvalued and heading to fairer prices .
But what is a fair price for anything ?
Calculate it for yourself :
See
https://www.academia.edu/8770429/Optimal_Markups_for_Sustainable_Growth
What garbage. Growth you say, growth of what exactly? Don't complicate things. It's really simple, in order to actually do or build anything fucking real, you need resources and calories that are available for consumption. If you don't have resources or calories to burn, you are going to actually do shit, much less "grow".
Baccarat is fun.
How many civilizations of the past were led to destruction by those that professed they were the best and the brightest and knew all the answers?
We are about to add a few more names to that list.
Uh...is the answer "All of them."?
The smartest guys in the room ....
Time to change rooms
This can be a little simplistic.......Synthetic puts can be made with calls and vice versa. Volatility skews can differ and there is no way of really knowing sentiment of the guy putting the trade on.
Anybody know if there was any bizarre off-the-charts put option activity in any particular issues (similar to airline stock puts prior to Whatever The Hell It Was That Happened In 2001)? Banks? Mall operators? Porn production companies?
Not really "bizarre," but George Soros recently went heavily short the S&P:
http://blogs.marketwatch.com/thetell/2013/08/15/soross-biggest-holding-a...
Those who shorted the airlines just before 9/11 were criminal insiders trading on non-public information. Soros is just a trading addict who often gets it right, like the GB pound collapse that made him a billion pounds in one day (Sept 16, 1992).
Interesting to consider this article in light of Dimitry Orlov's book, Five Stages of Collapse. Orlov argues that “my five stages of collapse…serve as mental milestones…[and each breaches] a specific level of trust or faith in the status quo. Although each stage causes physical, observable changes in the environment, these can be gradual, while the mental flip is generally quite swift” (p. 14).
Here are his five stages:
a) Financial collapse where faith in risk assessment and financial guarantees is lost (think Cyprus).
b) Commercial collapse that witnesses a breakdown in trade and widespread shortages of necessities (think Greece).
c) Political collapse through a loss of political class relevance and legitimacy (think current events almost everywhere).
d) Social collapse in which social institutions that could provide resources fail (coming to a locality near you?).
e) Cultural collapse that is exhibited by the disbanding of families into individuals competing for scarce resources (hopefully we never witness this).
Stage One: Financial Collapse
Orlov states “all that is required for financial collapse is for certain assumptions about the future to be invalidated, for finance is not a physical system but a mental construct” (p. 17).
It would appear that we are well into this first stage as more and more people are questioning not only the stability of the financial system, but its very structure and long-term viability.
Stage Two: Commercial Collapse....on deck...
http://olduvai.ca
Another way to view this...
financial crisis (theft) = soveriegn crisis = political crisis = public crisis
We are in stage 2 in the above series of events as well. The unknown at this point is depth of the public crisis. Your series presents 2 levels (social and cultural) herein - the latter is the Mad Max outcome. Not off the table - but more unlikely. If we reach that level, it will be an ELE.
Ebola-infected UN doctor dies in Germany, 41 more monitored
http://wtfrly.com/2014/10/14/ebola-infected-un-doctor-dies-in-germany-41...
< < < Puppets win
< < < Muppets win
FED ending QE = Equities down.
-300, here we come, baby.
Oil continues its merciless plunge (Brent down another 2% today, WTI sports an $84 handle). The rip in stocks has nothing permanent behind it. If all a POMO can do is get us back to the 200 MDA from underneath, you can expect another leg down.
Agreed, Goose. And..happeniing this close to elections? Just wow, POMO doesn't like DEMO? Who knew?
and USD doing its Chuck Norris thing
to FOMC's chagrin
Where's General Akhbar?
I thought he was inflated to an Admiral?
OT: Someone was executed in NYC on Sunday in a planned hit, complete with silencer (according to witnesses).
http://www.dailymail.co.uk/news/article-2791021/cyclist-executed-broad-d...
The weird thing being that two days later, the victim is still unidentified in the media. Well, the media that has even reported it, that is. So far the only local report I've found is in the Gothamist.
http://gothamist.com/2014/10/12/man_fatally_shot_in_the_head_while.php
Yeah, I saw this piece of news. Interesting that the name is witheld. Either part of ongoing investigation or we aren't supposed to know who he was. Either way, that was a "hit."
the witching hour is nigh
Fear is here. But we have yet to see the real potential of its iron grip. All in good time though.
The interpretation of statistics and ratio's change over time. I believe the vast majority of investors have extreme fear but the majority of investors are not part of the 1% who control a much bigger slice of the pie and therefore control. So 99% of investors could sale all they have run for the hills but the market will continue to rise because the Govt who serves the 1% command the market price. Our stock market has lost its freedom to adjust to economic conditions just like Americans have lost their freedoms to express themselves.
The interpretation of statistics and ratio's change over time. I believe the vast majority of investors have extreme fear but the majority of investors are not part of the 1% who control a much bigger slice of the pie and therefore control. So 99% of investors could sale all they have run for the hills but the market will continue to rise because the Govt who serves the 1% command the market price. Our stock market has lost its freedom to adjust to economic conditions just like Americans have lost their freedoms to express themselves.
Yes, the only real useful function of the official market, specifically, price discovery, is now 100% dead. It has been dying for a while.
Indeed. I could give a long explanation why I am not surpriced about this put/call ratio, but it boils down to: This article only thinks about the demand side of the options market, and not the supply side. Looking at the market distorsions at the supply side this ratio makes sense, even if we are not (yet) near another Lehman moment.