Making Sense of These 3 Schaeffer's Indicators

Looking at some of Schaeffer's commonly used options indicators

by Josh Selway

    Published on Jul 23, 2015 at 2:33 PM
    Updated on Jan 15, 2019 at 12:04 PM

    At Schaeffer's, we use numerous indicators in our writing to describe stock and trader behavior. While at first some of these things may seem confusing, in reality, they're quite simple to understand -- and can provide valuable insight for options traders. Below, we'll look at a few terms we regularly use in our coverage at to clear up any confusion you might have.

    Among our go-to data points are option volume ratios derived from information we receive from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Basically, we take all of the puts and calls that have been bought to open across these exchanges and put them into ratios. So we may say something like, "XYZ's 10-day call/put volume ratio at the ISE, CBOE, and PHLX comes in at 2.50." This means that for every XYZ put that's been bought to open during the specified time frame (10 sessions, in this case), 2.50 calls have been bought to open.

    Since, based on the above information, long call volume has easily outweighed long put volume, it'd be easy to say that XYZ speculators have been extremely bullish (since they've bought to open more calls) during the past 10 days. However, we like to see how that ratio stacks up against XYZ traders' previous behavior, so we compare it to all other 10-day ratios from the previous year. Therefore, using our hypothetical 10-day ISE/CBOE/PHLX call/put volume ratio of 2.50, we could say something like, "This ratio lands in the 95th percentile of its annual range."

    If you've ever taken a standardized test, this terminology should be familiar to you. A call/put volume ratio in the 95th annual percentile tells us that it is higher --  and seemingly more bullish -- than 95% of others from the past year. In other words, XYZ option traders have bought to open calls over puts at a faster rate only 5% of the time in the past year.

    Another one of our favorite indicators is the Schaeffer's put/call open interest ratio -- or SOIR. The main difference between this and the volume ratios we just described is that SOIR accounts for all open interest -- whether bought or sold -- not just buy-to-open activity. More specifically, the SOIR measures the open interest for puts and calls in a stock's front three-month series, which let's us see how traders with short-term objectives are positioning themselves. Like the volume ratios, we highlight SOIR percentile ranks to determine how call- or put-skewed speculators are.

    The last indicator we'll highlight here is the Schaeffer's Volatility Index, or SVI, which can be particularly useful during earnings season. In the simplest terms, SVI essentially tells us if traders are overpaying or underpaying for a stock's front-month options, from a historical perspective. The SVI averages the implied volatility of front-month options that are at the money. Then, by using a percentile rank, we can determine if those options are seemingly cheap or expensive, from a volatility perspective. So, if you hear us say that "XYZ's SVI of 49% ranks in the 95th annual percentile," you may want to put your money elsewhere, as volatility expectations are historically high. 

    To get real-time options updates using these and other indicators, follow @Schaeffer's on Twitter

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