When They're Getting a Bit Too Complacent
In a logical world you'd expect traders to buy calls when stocks were cheap, as that's when they have the best potential to rise dramatically. You'd probably think we'd see purchase of puts as insurance against declines following big run-ups in shares.
That would make sense, but it isn't what typically happens. The chart below shows the action of the S&P 500 (the blue top line) vs. the equity put-call ratio. That end-of-June peak of 135% (the right scale) indicates 135 put contracts were bought for every 100 call contracts....181 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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