Sentiment Trader demonstrates how bullish speculative mania as measured by option activity is now at a decade, if not all time, high. With moral hazard having become the only game in town, everyone believes their investments are implicitly guaranteed by the government, which if recent indications are to be believed, is on deck to repeat the collosal Cash For Clunkers blunder with appliances, and media companies soon thereafter. When the taxpayer picks up the tab, every tab, how can one lose? And in the new paradigm of capital markets, the crowd is always right.
From Sentiment Trader:
The chart below shows a Speculative Options Activity index. This is simply the number of opening options transactions that are bullish bets on the market minus those that are bearish on the market. To be more precise, call purchases and put sales are combined (since they both profit if the market rises), and then we subtract the total number of put purchases and call sales (since they both profit if the market falls).
Constructed this way, the indicator will show a high reading if options traders expect the market to rise, and a low reading if they expect it to fall. The chart below shows this measure over the past few years.
Here's a longer-term version of the same chart.