This article was originally published in The Option Strategist Newsletter Volume 17, No. 6 on March 27, 2008.
Amongst our array of technical indicators is the put-call ratio. We use it extensively in analyzing the broad market (equity-only putcall ratios) as well as individual stocks and, especially, futures. It is less useful in the indices and ETF’s, but sometimes has validity there, as well. Furthermore, we use $VIX derivatives – particularly the futures – as predictors of short-term moves in the broad market as well. These $VIX derivatives have been very useful and accurate indicators, with two or three great “calls” again in the last week. So, the question becomes, should we be looking at put-call ratios on $VIX – trying to combine these two indicators which, separately, have proven to be quite useful in their own right? As you shall see, the answer is not completely clear, but there does seem to be some usefulness in $VIX put-call ratios.
