Where Have All the Call Buyers Gone?

When call buyers flee, it usually means shorting opportunities await

Senior Quantitative Analyst
Sep 21, 2022 at 8:29 AM
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Call options haven’t been this unpopular relative to puts since the beginning of the coronavirus pandemic, per the 20-day equity only buy-to-open (BTO) call/put ratio. The chart below considers option volume that was initiated by buyers. It disregards closing positions and volume from sellers, so the data is more likely to be speculative, allowing us to draw more straightforward conclusions on investor sentiment. The data comes from three different exchanges: the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX).

Ratio readings below 1.50 have been rare. The ratio barely fell below this level for just one day earlier this year. Before that, per the chart below, it occurred during the coronavirus crash of March and April 2020. The only other time it happened prior to that was in 2015, bouncing back and forth around this level through mid-2016. There was a near signal during the pullback in late 2018, but the ratio didn’t quite get to 1.50.

SPX 20 Day PC Ratio

This next chart shows why the ratio is falling. Call buying shot higher after the initial coronavirus crash. Now, call buying has fallen back to pre-pandemic levels, while put buying has been more or less steady over the past couple of years.

Call Put Ratio

Shorting Opportunities Ahead?

Since 2012, there have been only four times that the BTO call/put ratio has dropped below 1.50, as it did recently (it had to be the first signal over the prior three months). Other than the March 2020 signal, the other two signals were perfectly timed shorting opportunities. The S&P 500 Index (SPX) was down over 10% just two weeks after the signal this past June. It fell 8.7% in the two weeks after the signal in August of 2015. It’s only two data points, so it’s possibly meaningless, but we will see what happens.

PC Ratio Below 150

Calls by Sector

Here’s a look at how specific sectors have impacted the BTO call/put ratio, with stocks grouped into about 40 sectors. The table below shows the sectors with the most volume, with the technology hardware sector leading that category. For that sector, the average ratio since 2019 has been right around two calls for every put. The current reading is 1.13, so it has dropped significantly.

Only three of the sectors below have readings that are higher now than the average over the last few years. While option buyers are pessimistic now compared to the past, these three sectors (industrial metals & mining, telecommunications service and financial, and credit services) appear to be more bullish. The contrarian take would be that, in the event of a rally, these sectors could underperform.

20 day cp by sector


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