Options Volatility Trading: Strategies for Profiting from Market Swings by Warner Adam

Author:Warner, Adam [Warner, Adam]
Language: eng
Format: mobi, epub
Publisher: McGraw-Hill Education
Published: 2009-10-12T23:00:00+00:00

But then like manna from heaven, or at least like a new index from an MBA, the ISEE (ISE Sentiment Index) was born. It was the brain child of the International Stock Exchange, the first all-automated options mart. It was as if it read my concerns from above and addressed as many as humanly possible. The ISE described it as follows:

The ISE Sentiment Index (ISEE) is designed to show how investors view stock prices. The ISEE only measures opening long customer transactions on ISE. Transactions made by market makers and firms are not included in ISEE because they are not considered representative of market sentiment due to the often specialized nature of those transactions. Customer transactions, meanwhile, are often thought to best represent market sentiment because customers, which include individual investors, often buy call and put options to express their sentiment toward a particular stock.

Bravo. Bravo.

Sounds wonderful. I mean no more smart money. Only buyers. Etc. Etc. It sure seems like a far better mousetrap. In fact my only quibble is that it is reported as a call/put ratio. And then it must be multiplied by 100, which needlessly adds confusion when you try to compare it to the CBOE’s basic put/call.

Sure sounds like a better mousetrap. But then I run a simple correlation between the 10-day Moving Average and the 30-day returns in SPX as above, and it’s –.04 (remember it’s a call/put, so a high negative number would be stronger).

Ouch.

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