Friday, May 02, 2008
Options and Stock Market Sentiment for a Friday
* Improving Sentiment - Notice how the 10-day equity put/call average (pink line in chart above) spiked to a high with the March bottom and since has been trending lower as stocks have moved steadily to new highs. Indeed, we're getting close to sentiment levels that have been associated with recent short-term market tops.
* VIX Excursion - I recently noticed that we had moved well below the 50-day moving average in the VIX, indicating low option volatility on a relative basis. I went back to 1991 (N = 4314 trading days) and found that, when the VIX has been above its 50-day moving average, the next 50 days in the S&P 500 Index (SPY) have averaged a gain of 2.35% (1346 up, 604 down). When the VIX has been below its 50-day average, the next 50 days in SPY have averaged a gain of only 1.26% (1499 up, 865 down). When the VIX has been more than 10% above its 50-day moving average, the next 20 days in SPY have averaged a gain of 1.49% (574 up, 305 down). When the VIX has been more than 10% below its 50-day moving average (as has been the case recently), the next 20 days in SPY have averaged a gain of only .27% (566 up, 401 down).
* For Option Rookies - Mark Wolfinger has a new book out for beginners in the options markets, as well as other resources on his web site. Nice way to learn the ropes from a CBOE floor guy.
* What You Should Know About the VIX - Bill Luby outlines VIX essentials, including a rundown of different option volatility measures.
* Summer Doldrums Coming Early? - Daily Option Report takes a look at the implications of a declining VIX.
* Looking at Options Measures in Tandem - An earlier post on how VIX and Put/Call Ratio are related; note that both are in decline of late.