Thursday, September 11, 2014

Using Put-Call Ratios to Gauge Intraday Stock Market Sentiment

The most recent post took a look at the equity put-call ratio as a way of gauging market sentiment.  Suppose, however, that you are interested in gauging sentiment shifts that occur within the market day.  The figures reported by exchanges are the daily ratios updated throughout the day.  They do not tell you specifically how many put options and call options are traded uniquely during each segment of the day.

If you click on the chart, you'll see figures that don't typically appear with the data services.  I took the number of equity put options traded during each 15 minute segment of the market day and divided them by the number of equity call options traded during each of those segments.  The result is a unique put-call ratio for each 15-minute period, rather than a daily figure updated every 15 minutes.  (Data obtained from e-Signal and ratio calculated and charted in Excel). 

You can see how sentiment has shifted over the course of the last three trading days, with spikes in the put-call ratio at yesterday's market lows and rather bullish sentiment by end of day.  In general, I find value in the sentiment measures at extremes:  when readings are unusually bullish or bearish. 

Further Reading:  Visualizing Social Sentiment