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By Lawrence G. McMillan

For the first time since January 7, 2009, the CBOE Equity-Only Put-call ratio is above 1.00.  On Friday (June 10th), nearly 880,000 puts traded, while slightly less than 860,000 calls traded.  This is a rare occurrence -- as evidenced by the fact that there hasn't be a daily reading above 1.00 in 29 months. 

As is the case with other put-call ratios, this is a contrarian measure.  One can usually expect a quick rebound in the stock market, although details of past occurrences vary rather wildly.  Usually, its effect wears off as soon as the market -- measured by $SPX, say -- rallies for just one day.  Thus, this is not an intermediate-term indicator, but is rather just an indication of a very short-term oversold condition. 

For example, that January 2009 occurrence resulted in a rally the next day of only a small amount.  The most spectacular instance was October 10, 2008, where $SPX rallied 104 points the next day (of course, a lot of unusual things happened in the fall of 2008).

In the next issue of The Option Strategist , we plan a more extensive review of the past signals from this rare indicator, including the development of a trading system to utilize it. 

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