Hi Guys, Let's say you use put/call ratio as part of your trading strategy, which put/call ratio would you use? 1. put/call ratio based on exchange-trade volume. 2. put/call ratio that also takes into account OTC traded volume. Regards Trader2056
What use is Put/Call Ratio? Call Credit Spreads are not bullish. Covered Calls are not bullish. Short Calls are not bullish. As you can see the above positions involve calls only and the Put/Call Ratio signals BULLISH. Back to the drawing board.
Why would you pick any of them? Put call parity and the ability to short stocks and treasuries means that you can produce the same exposure with a put as a call, making a ratio between the two as meaningful as the put/put ratio.
It's a blunt indicator. You never really know if it is a position or a hedge. It doesn't show net delta. It doesn't show convexity. Use what you can get easily.
So, what about using OI of say x% OTM puts vs x% OTM calls as a comparator for bullish/bearish indicator for that particular underlying?
Rather exotic, where can I read more about this? There is a phenomenon called "pinning" that you can research further. But, that is in Secret Sauce territory.
I don't know, being new to options trading, I kind of assumed index is for the pros because of their high volume and liquidity and I figured I was not smart enough to trade against them so I mainly traded thinly traded underlying. I noticed for those, there were often mismatched between OI for calls and the counter puts (not to confuse with put/call parity) and traded accordingly and sometimes I got good results, even with wide bid/ask. Again, thanks for your "pinning" suggestion. I will take a look and hope to learn something new. Regards,
Be careful of theoretical rabbit holes. Keep studying the (options)Greeks and model your trades. "80% of what you need to know in trading, you already know. You just don't know it yet." - Confucious, 1200 BC