Put/Call Ratio

[TheDude 10]

Hi,

 

I've been looking at the put call ratio of several commodity futures through December to see if they lend themselves in anyway to a leading indicator for the underlying which I primarily trade (typing this I feel as though I'm using them as a predictive tool which goes against my belief of managing 'now' rather than predicting futures - a fools errand IMO but another topic...)

 

Here's what I've been doing....

 

- Every week, looking at Friday's settle.

- Taking the ATM strike, then adding Open Interest for the two strikes above and below the ATM strike for both calls and puts.

- I then calculate the difference between the calls and puts, logging it as either a + or - percentage

 

Therefore, if I have a negative percentage, it means the put OI is stronger than the call OI and perhaps the underlying will fall?

 

Two of the commodities are yet to expire (Euro FX & ES), but an eyeball look at the results don't look too promising if I'm honest.

 

Does anyone have any experience of put/call ratios, if/where they are are useful?

 

Many thanks,

 

Dude.

 

PS the markets I've been following are Bonds, EuroFX, ES, Corn, Gold, Eurodollar red

Perhaps I'm long financials, but I understand commercial players typically act differently in Eurodollars where they tend to be short, rather than long as in other markets - can't say this shows in my results to date)

[MadMarketScientist 11]

The put-call ratio is primarily used by traders as a contrarian indicator when the values reach relatively extreme levels. This means that many traders will consider a large ratio a sign of a buying opportunity because they believe that the market holds an unjustly bearish outlook and that it will soon adjust, when those with short positions start looking for places to cover. There is no magic number that indicates that the market has created a bottom or a top, but generally traders will anticipate this by looking for spikes in the ratio or for when the ratio reaches levels that are outside of the normal trading range.

 

MMS