Truth Revealed! The Put/Call Ratio | Trading Data Science

Should traders user the put/call ratio to make decisions? Financial reporters and professionals are often heard citing the put/call ratio as an indicator of market bullish or bearishness. Dr Data (Michael Rechenthin, PhD) ran a huge study, to understand if there is value in the metric. Dr. Data guides us through the studies and the results. This information should help your trading. Watch this segment of The Skinny on Options Data Science with Tom Sosnoff, Tony Battista and Dr. Data for the takeaways and to learn whether the put/call indicator is a worthwhile tool to use. View more Skinny on Options: Data Science videos: http://ow.ly/TTHY2 ======== tastytrade.com ======== Finally a financial network for traders, built by traders. Hosted by Tom Sosnoff and Tony Battista, tastytrade is a real financial network with 8 hours of live programming five days a week during market hours. From pop culture to advanced investment strategies, tastytrade has a broad spectrum of content for viewers of all kinds! Tune in and learn how to trade options successfully and make the most of your investments! Watch tastytrade LIVE daily Monday-Friday 7am-3:30pmCT: http://ow.ly/EbzUU Subscribe to our YouTube channel: https://www.youtube.com/user/tastytrade1?sub_confirmation=1 Follow tastytrade: Twitter: https://twitter.com/tastytrade Facebook: https://www.facebook.com/tastytrade LinkedIn: http://www.linkedin.com/company/tastytrade Instagram: http://instagram.com/tastytrade Pinterest: http://www.pinterest.com/tastytrade/

Comments

1. So maybe I should quit looking at the CNN fear/greed index.
2. excellent presentation (as always)... thank you! But whoa mule - not so fast on the conclusions from the slide showing the provability I'd an up day 10-days later if P/C is above 1.0. If they probability of a normal day being an up day 10 days later is 55.7% but it's 56.5% after a P/C>1.0, that's 0.8/5.7=14% higher! On your scatter plot, only 2 out of the 8 points corresponding to P/C>1.0 gave a negative return at 10 days. Not sure the data really says there's absolutely no relationship when P/C>1.0 and I'd love to see that scatter plot for 5 day returns - the slope might be a bit more obvious. Great work and thanks.
3. Your study seems to on target and your reasoning appears sound.
   Check One Outlier. American and United the week before, Sept 10 2001.
   Who bought those puts? (that's a question not a statement)
   
   Outside of that very sad extreme example it without numbers I have observed the same over time.
4. If would be good to see if you got away from the statistical ratio or standard deviation for the put/call ratio, as well as day after the even, and look at other technical aspects of the trading. At thehe same time adding in other variables for determining when to execute a trade based on a put/ call ratio.
   
   Maybe comparison for specific stocks and indices with comparison to market tops/bottoms/ patterns/ normal volume/ Supply demand zones etc. The list could go on. But even as veteran traders, you know, not one specific measure works on its own.
   
   As we know the more tools we use the higher probability we have. Your looking at one variable. This like comparing an RSI, win ratio will normally be around 50%(profit/lose most likely not even close). Not a very good comparison within markets today.