Put Call Ratio Up, Stocks Down?
In 2023 the relationship between the Put Call Ratio and Indices has been clear. Put Call Ratio Up, Stocks Down. And vis-a-versa. Why? Significantly fewer Puts relative to Calls is not often sustained for too long and it reverts to mean. As more Puts are added, dealers hedge, forcing them to short in the outright market. Furthermore, if money managers are heavily exposed to long stocks and indices (as they are now) AND they have low levels of Put options to hedge those positions, then if aggressive selling begins, panic selling can follow. So no news, down slowly? Bad news, down quickly?
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