I like to use this space to give all of you a sense of what macro indicators I look at on a daily basis. Today’s chart is of an indicator that I haven’t mentioned before. It’s the CBOE Put / Call Ratio.
The Put / Call Ratio that I look at measures the ratio for all index and equity options traded on the CBOE. So the higher the ratio, the more puts are trading, and presumably, the more panicky traders are getting. Here’s the current chart:
The chart shows that panic (as measured by more put activity than call activity) peaked in mid-May, and ever since then, the ratio has been steadily declining. So options traders have actually been more active in calls than in puts for the past 2 weeks, including today, despite the large gap down open.
I don’t put too much weight into the put/call ratio. In fact, this is low on my hierarchy of indicators. It’s just too noisy for me. But I still look at it, just in case something stands out. And today, the chart stood out for the lack of put activity on a day when the VIX gapped up so aggressively. It’s another sign of broader complacency to me, especially surprising on a day like today, when European banks hit new 25-year equity price lows.