Put/Call Ratios in 2012 – SPX 1.69; VIX 0.60; GLD 0.74

As noted in the table below, the aggregate put/call ratios for key CBOE options in the months from January through August 2012 include –

Larry McMillan has written –

“For one of the best windows into investor sentiment, you need to watch what’s happening in the options pits.  If you know when fear or greed reach unsustainable extremes in the market, you give yourself a better chance of identifying possible turning points. Options trading activity can yield very valuable clues in this regard, and one of the most reliable indicators I’ve found is the put-call ratio, a useful, sentiment-based, technical indicator. It’s a contrarian indicator, so the higher the put-call ratio, the more pervasive the bearishness and thus the greater the likelihood that the market will turn higher and prove the crowd wrong, as it has a long track record of doing. On the flip side, a low put-call ratio suggests an overabundance of bullishness and provides an early warning of a possible downturn.  …” (link)


Why was the put/call ratio so much higher for the SPX options than for the VIX options?  One possible simple explanation could be that many investors are long stocks, and they also engage in long SPX protective puts and long VIX calls in order to protect their portfolios.  However, please note that there are both buyers and sellers for every options position, and some customer demand is led by sellers (e.g., one could sell SPX calls in an attempt to mimic the BXM strategy www.cboe.com/BXM).