DANGER SIGNAL: The public is making massive bets on higher stock prices. What could go wrong?

June 11 (King World News) – The following is from Jason Goepfert at SentimenTrader: “Options traders go all in. Options traders have rushed into bullish strategies at the expense of more conservative ones. Call volume last week was the largest since January. Much of that was small traders buying call options to open, not a good sign for stocks.

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Goepfert continues: “Last week, options traders splurged on speculative strategies. Across trader sizes and types of strategies, there was a clear pattern of giving up on defensive positions and moving into riskier strategies.

The Options Speculation Index (OSI) takes an aggregate view of these strategies. It looks across all trades done on U.S. exchanges for the week and compares the volume flowing into bullish options strategies versus bearish ones. Bullish positions would include buying calls or selling puts to open, while bearish ones include selling calls or buying puts to open.

Total call volume last week mushroomed to 32 million contracts, the highest since late January, while put volume was about average. Overall, the flood of money into bullish strategies pushed the OSI to 1.33, meaning there was 33% more volume in bullish strategies than bearish ones. That’s among the highest levels in 18 years (see chart below).

DANGER: Options Traders Go “All In” With Call Buying – Among The Highest Readings In 18 Years!

DANGER: 2nd Highest Reading Ever!

Last week’s reading was the 2nd-highest ever, next to the week ended February 2 of this year (see chart below).

One of the primary reasons for the spike in the OSI is due to small options traders. They have decided to go all-in on the idea of a continued rally. Out of 10.6 million contracts that small traders opened last week, 4.4 million, or 41%, were used to buy call options (see chart below).

DANGER: Small Traders Wildly Bullish On Stocks!

… This is a warning, for sure, and we consider a negative for stocks going forward. But it’s not a suggestion to immediately sell stocks.”

King World News note:  It’s very rare that small traders are rewarded when acting in a herd, especially at extremes. This is definitely a caution flag for the stock market.

The piece above is just one example of why Jason Goepfert is the best in the world at what he does — providing actionable market data.  The charts and commentary above are from SentimenTrader. To try a free 14-day trial of the internationally acclaimed work that Jason Goepfert produces at SentimenTrader simply CLICK HERE.

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