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Tutorial on Dollar Weighted OEX Put/Call Ratios
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Wachovia Securities Portfolio Manager Nestor Turzcan uses the Hamzei Analytics’ OEX Dollar-Weighted Put/Call Ratio as a timing model during his trading day. Here is how he uses this product:
"The Dollar-Weighted Put/Call Ratio is a key sentiment indicator used to predict or decipher the current condition of the market. Most sentiment indicators are intermediate term, for example, "Investors’ Intelligence Numbers." While the Dollar-Weighted Put/Call Ratio can be used for intermediate term, it has astonishingly good predictive value in the short-term time frame, especially minute to minute.
In the case of the OEX, it is common belief that the majority of players are ill-informed and novices, greedily looking for an easy leveraged profit or fearfully trying to preserve their capital during a loss. Given this premise, the majority will be wrong, especially at market extremes, due to the psychological aspects of fear and greed. At these times the DWPCR of the OEX and other related index options becomes significant."
The chart below depicts Put/Call Ratio for OEX on April 4, 2000, during which, S&P 500 index (SPX) and NASDAQ Composite indices exprienced their highest intraday point drops ever.
All times on this chart are Pacific Time Zone. Simple Put/Call Ratio is in blue. Dollar-weighted Put/Call Ratio is in pink. The high in DWPCR corresponds to the intraday low for SPX and NASDAQ.
This is the intraday chart of S&P 500 index on that fateful day.
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