What This Rare Options Signal Could Mean For the SPY

For just the fifth time since 2005, SPY call volume exceeded put volume for three straight sessions

by Alex Eppstein

Published on Jul 13, 2016 at 1:47 PM

Yesterday, SPDR S&P 500 ETF Trust (SPY) call volume exceeded SPY put volume for a third consecutive session. While this options data may not seem particularly notable, it's a historical rarity. In fact, yesterday's signal represented just the fifth time this has happened since 2005.

Looking more closely, those signals haven't been evenly spaced apart over the last decade. When SPY call volume topped put volume for a third straight session on Tuesday, it was the first time this had occurred in over seven years -- since March 2009, during the financial crisis. Schaeffer's Quantitative Analyst Chris Prybal breaks down the five episodes in the table below, along with the SPY's percentage returns within certain time frames:

spy option signal july 13

We've established the relative rarity of the SPY signal, but what happens next? The sample size is small, so it's hard to draw a definitive conclusion. But, based on the data available, the returns are encouraging for bulls. Going out just two weeks, the SPY already averages a gain of 3%, versus an at-any-time return of 0.3%. By six months and one year, the typical post-signal advances are an even more impressive 10.6% and 23.4% -- outstripping their corresponding anytime readings of 3.2% and 6.7%, respectively.

Not surprisingly, volatility is also higher pretty much across the board, based on standard deviation. In other words, the SPY has experienced sharper-than-usual moves -- to both the upside and downside -- after flashing this unusual options signal.

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