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Too Much Put Buying? (Barron's Article)

By Lawrence G. McMillan

Put-call ratios are excellent measures of the sentiment of the general option-trading community. When the sentiment is that "too many" people are buying puts or calls, it is worthwhile to pay attention, for the majority are normally wrong at major turning points, and their actions can be interpreted into a market trading signal.

Consider the chart of the equity-only put-call ratio at the top right of this page. You can see that there is a general inverse symmetry between the unscaled chart of the market (top line) and the put-call ratio (bottom line). Peaks in the put-call ratio are points ...

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