Biggest Bearish Bias in 3 Years, Options Data Suggests

The average 10-day buy-to-open put/call volume ratio on the ISE, CBOE, and PHLX sits at a three-year high

Aug 13, 2015 at 8:54 AM
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Although U.S. stocks performed an about-face yesterday, the major market indexes are still in the red for August, and the Dow Jones Industrial Average (DJIA) and Russell 2000 Index (RUT) just underwent "death crosses." China's surprise yuan devaluations triggered the latest rough patch for the global equities market, with European benchmarks suffering their worst day of 2015 on Wednesday. Against this backdrop, and amid caution ahead of the Fed's expected rate hike, bearish bets in the options pits have soared to their highest level in years. 

Specifically, the average 10-day buy-to-open put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 0.73 -- the loftiest level since June 5, 2012, when the S&P 500 Index (SPX) was trading near 1,285. In other words, option traders are placing bearish bets at a much faster-than-usual clip, buying to open puts over calls. Below is a chart of the ratio, juxtaposed against the SPX, since 2007.


Meanwhile, as Schaeffer's contributor Adam Warner pointed out, nervous speculators are paying up for calls on the CBOE Volatility Index (VIX) -- otherwise known as the market's "fear gauge." By doing so, traders are essentially gambling on volatility, and most likely expect the recent trading range to be broken to the downside. 

Among the most active SPX-listed options over the past 10 days was Apple Inc.'s (NASDAQ:AAPL) weekly 8/7 115-strike put, which expired just out of the money last Friday, as well as AAPL's September 120 put, which will stay in the money if the blue chip closes south of $120 upon expiration on Friday, Sept. 18 -- not long after the company's expected iPhone/iPad/Apple TV announcement. 

AAPL traders have been initiating bearish bets at a rapid-fire rate, as the stock wallows beneath its 200-day moving average. In fact, the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.67 sits just 2 percentage points from an annual high.

Also garnering notable attention as oil plumbed six-year lows: energy issues Chesapeake Energy Corporation (NYSE:CHK) and Transocean LTD (NYSE:RIG). The former saw action at the October 8 put, which is currently at the money. CHK is just off a 12-year low, and bearish bets have picked up steam, as the equity's 10-day ISE/CBOE/PHLX put/call volume ratio approaches 52-week highs. The latter's 10-day put/call volume ratio of 6.28 sits in the 85th percentile of its annual range, and traders have been circling RIG's November 13 put -- now out of the money, with the stock sitting north of $15.


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