This Sentiment Reading Is Not Like The Others

Tyler Durden's picture

Via Dan Lyons' Tumblr,

Options data from the International Securities Exchange does not corroborate the frothy readings seen in most other sentiment measures.

We’ve mentioned several times in several different outlets that perhaps our biggest concern regarding the equity market presently is overheated sentiment. From professional active money managers to volatility traders to traders in bearish ETF’s and mutual funds, sentiment readings are registering either severe complacency or downright bullishness. This nearly unanimous optimism is what has us concerned.

And then there’s the equity options trading on the International Securities Exchange (ISEE).

Just when you start to think this stock “game” is easy, you wake up and realize that the market’s ducks are never all in a row. There is always something, or a few things, that don’t fit with the rest of the data – or one’s analytical narrative. Such is the case with the ISEE. That is because, using a 21-day moving average, the ISEE Call/Put ratio is at its lowest level since its inception in 2006 – as in, ever. In other words, in 10 years there has never been a 21-day stretch that saw fewer calls purchased relative to puts.



This one is a bit of a head-scratcher to us for a few reasons. First of all, the obvious. Like most options indicators, the ISEE has historically seen an increase in call buying relative to puts when the market was rallying. And while it is true that the market (i.e., the S&P 500) is flat over the past 21 days, it is still just a hair away from its all-time high. In fact, it has not dipped beyond 1% below its 52-week high in 2 months. To see such a dearth of call buying in these circumstances is highly unusual.

Secondly, as mentioned, the ISEE has always been one of our favorite options – and sentiment – indicators. One reason is the way in which the indicator is constructed. The ISEE only includes opening long positions in calls and puts, and only among smaller retail-type traders. These factors tend to weed out much of the noise associated with more advanced investors and more complicated strategies. Thus, the result is theoretically a more pure gauge of investor sentiment. And indeed, we have found the ISEE to be quite accurate and effective in producing contrarian sentiment signals.

And that’s what makes the current signal so peculiar. Low readings have historically been associated with severe weakness in the equity market. For example, the 3 lowest readings prior to the present one occurred in March 2008, December 2008 and August 2015. Our present record-breaking trading range bears no resemblance whatsoever to those prior periods.

Therefore, while under “normal” circumstances, we would consider this data point to be extremely bullish, presently, we’re not so sure. The signal is so unorthodox that we have to consider the possibility that some sort of structural change in the data is afoot. Therefore, it’s probably best to observe this data series for a while to see if it continues to be a reliable indicator of investor sentiment.

At a minimum, when “one of these things is (so) not like the others”, it diminishes our confidence in its message.

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More from Dana Lyons, JLFMI and My401kPro.

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buzzsaw99's picture

put call mumbo jumbo = goat entrails

VinceFostersGhost's picture



Thanks..I'll look into that.


Spent a damn fortune on chicken bones......what the hell was I thinking?

StackShinyStuff's picture

I will offer rum to Jobu, to take fear from markets.  No wait...

HopefulCynical's picture

"I am good to you, Jobu. I stick up for you. You no help me now...I say, Fuck You, Jobu. I do it myself."

Great movie.

MANvsMACHINE's picture

-fingers in ears, moderate screaming-

This works for me when put/call ratio goes above 1. If p/c ratio hit 2, I just turn up the scream level.

Budnacho's picture

"Ahh Jesus, yes I know him well....but he still no let me hit 2% interest-growth rate"...

buzzsaw99's picture

are you telling me the lord can't hit a growth rate?

Dutti's picture

Not too difficult to understand that with a rising market and seasonal anxiousness people buy more puts for their long position protection...

Butter-Cup's picture
Butter-Cup (not verified) buzzsaw99 Sep 9, 2016 10:13 AM

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do...

assistedliving's picture

looks kind of obvious now...better get me some goats

NoDebt's picture

Bah!  It'll be fine.  You'll see.


gmak's picture

+1 buzzsaw

eye of newt and lizard gizards. 

RadioFlyer's picture
RadioFlyer (not verified) Sep 9, 2016 8:23 AM

Sharts: Shit + Charts. Meaningless in this rigged world.

Reichstag Fire Dept.'s picture

Speaking of shit, I just took, how do I securitize and collateralize it so I can sell puts and calls on it in the fututres market?

_RRR_'s picture

shit on wall street? these noble people, you can't be serious

hsb1957's picture

I believe that the use of weekly options may be skewing much of the prediction ability of this metric. Also, given the limited history of the indicator, I find it fascinating in that it foresaw a short covering rally early in 2008 before the wheels came completely off the wagon a few months later. 

Iconoclast421's picture

It is a classic bullish signal, just like the article admits. The ECB is about to go ham and start buying stocks. All hell could break loose in equities. The S&P500 could easily soar to 2700 within 90 days if the ECB starts pumping it. It is called a crack up boom. This basically needs to happen just to avert a global recession. Sure, all the proceeds will go only to the 1%, but if the bottom 99% show absolutely zero signs of resistance, then what makes you think it wont happen? If you double the wealth of the top 1%, this would theoretically cause roughly a 1% spike in GDP.

GUS100CORRINA's picture

We are in unchartered territory with CB intervention. The BOND markets in Japan are broken as well. 


HopefulCynical's picture

When you put two Ps in it, it reads like hop-ium instead of hope-ium.

Hopped up on hopium. See?

Daize's picture

umm, take a look at the chart again. The ISE C/P R has been out of synch with the market since early 2011, late 2010.

brada1013567's picture

Wow I guess those puts I bought didn't count

Justin Case's picture

Just part of the many market manipulation instruments from the FED tool box.

moneybots's picture

"At a minimum, when “one of these things is (so) not like the others”, it diminishes our confidence in its message."


Another market indicator, broken.