You may have heard about the market's “fear index,” but did you know that tracking the daily and weekly trends among options traders can help you track investor sentiment, too? By following the highs and lows in put/call ratios, it's possible to identify sentiment extremes - and even anticipate the next big market reversal.
When put/call ratios reach extreme highs, it can indicate heavily negative sentiment… meaning any hint of positive news could spark a big rally. On the other hand, very low put/call ratios are associated with former Fed Chair Alan Greenspan's old bete noire, “irrational exuberance” - which means those raging bulls are vulnerable to a takedown if negative headlines hit the wires.
To learn more about how you can use put/call ratios to help inform your trading, where to find them on Barchart, and more, watch this quick video explainer.
