After a wild trading day to start the second week of trading in May, this warning signal has triggered disastrous stock market returns.
Call Selling Hits Record Low
May 6 (King World News) – The following is from Jason Goepfert at SentimenTrader: If a bull market teaches anyone anything, it’s that it can be painful to watch others make money. And doubly so when you miss out on gains by selling too soon.
Small options traders have taken this to heart. Over the past five weeks, they have spent an average of 39% of their options volume on buying call options to open. That’s nearing the highest amount since the financial crisis…
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At the same time, they spent barely 20% of their volume selling calls to open, a new record low dating to at least 2000. Be selling calls, traders sacrifice potential upside in exchange for collecting a (small) premium up front. Small traders have apparently decided that’s a sucker’s bet in a roaring bull market.
Small Traders Bet On Continued Roaring Bull Market
This is a stark statement on sentiment. By aggressively allocating their volume on speculative upside call options and avoiding the potential to miss out on gains by selling calls, they are among the most aggressively positioned as any other time in the past 19 years.
Small Traders Among The Most Aggressively
Positioned In The Past 19 Years
Below, we can see every time since the year 2000 when the spread between small traders’ call buying and call selling got as wide as it is now.
This Warning Signal Has Ushered In
Disastrous Stock Market Returns!
The numbers aren’t good, though of course there is the caveat that the sample size is awfully small when we look at unique clusters. There were really only three of them – in 2000, 2007, and 2018.
Looking at the chart or those dates, it’s clear why this is worrisome.
This is another example of why Jason Goepfert is the best in the world at what he does — providing actionable market data. To subscribe or try a free two week trial to the internationally acclaimed work that Jason Goepfert produces at SentimenTrader CLICK HERE.
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