Put-to-Call Ratio at Highest in 12 Years -- Fast Money Folks Not Worried

Bloomberg News reported yesterday that the put-to-call ratio was highest it has been in the last 12 years.  That is no small thing.  The ratio is a key indicator of investor fear that the market will drop.  With this kind of information - quite dramatic information - the prudent investor might get out of the market pronto.  Not so say our friends at Fast Money.

They have a different take -- in fact, a totally different read altogether.  They say one is misinterpreting the data.  Instead of a sign of great fear, the put-to-call ratio is a sign of great optimism in the economy.  It is, they argue, simply good sense for bullish investors to take out a little insurance through puts (relatively low cost insurance) to protect their positions in a time when the market is making extraordinary new highs.  They conclude that this is not bearish behavior -- rather excellent strategy to protect portfolios in good times.

Interesting argument, but probably off the mark.  This ratio is a serious indicator, and should not be taken lightly.  The market is going to come crashing down in the not too distant future.  That is why the indicator is so high.  The next step -- and the one that will follow the put traffic and take the market down -- will be to see huge selling of position.

Reviews

  • Anonymous

    July 18, 2007

    Options are an inexpensive way to hedge. I wouldn't read too much into them.

  • Anonymous

    July 18, 2007

    According to this week's Business Week, the Put/call ratio is .77 down from last week's .88. It is not near the highest it has been and, at .77, it is considered a positive indicator. I think Bloomberg is incorrect or the article on Bloomberg is incorrect.

  • Anonymous

    July 18, 2007

    This does cause me some concern. Why take out insurance if you're not expecting some kind of calamity? Still, I don't see the market crashing. A small correction may happen though.

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