SPX call buying has fallen sharply since the summer months
Last week, I wrote about how the S&P 500 Index (SPX) has not hit a new record high since January 2022. The low since then was reached in October of last year. With the S&P 500 firmly in this trading range, I decided to look at what option buyers are focusing on.
I will be using our buy-to-open option volume data, which is aggregated from three different exchanges and only considers options that were initiated by buyers. This means that it excludes closing volume and option selling. This data is more likely to represent straight speculation, which provides a better gauge of investor sentiment.
Call Buying Falls off a Cliff
The chart below shows the SPX, along with the ratio of buy-to-open (BTO) call volume on SPX stocks to put volume over the past 63 trading days (three months). The ratio has fallen sharply recently and is low relative to the data since 2016. Ratios can fall because of a drop in the numerator (less calls) or an increase in the denominator (more puts). Let’s see what’s driving the ratio.
Call buying spiked during the rally from May through August, but as stocks cooled, the call buying was less fervent. Put buying has not been nearly as volatile as call buying, but it’s been trending higher and near its highest levels since 2016. In this case, the ratio has dropped because of both a fall in call buying and a rise in put buying.
Options Trends Breakdowns Sector-by-Sector
Finally, here is a look at how option buyers have been treating specific sectors. The table below shows the top 20 sectors by BTO volume. It shows the average BTO call/put ratio since 2016 as a benchmark. Then I will show the ratio for the past three months. The last column is a ratio of the current BTO ratio to the average historical ratio. A value above one means more call buyers now relative to put buyers compared to the past. A value below one means there’s currently more put buyers relative to call buyers when compared to the past.
The wide-ranging technology hardware sector has the highest volume, including heavy-hitter, household name stocks like Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), and Advanced Micro Devices (NASDAQ:AMD). The call/put ratio for this sector has typically been about 1.94 since 2016 but is currently at 1.40. This is similar to the overall numbers in the chart, which makes sense given that it is the sector with the most volume.
Retail is the first sector that is different from the others. Call buyers are more prevalent now than in the past, which is different from stocks overall. The last sector I’ll point out is pharmaceutical stocks, which have typically seen over two calls bought for every put going back to 2016. But over the past three months, option buyers have bought more puts than calls. So, overall, option buyers seem less bullish now than usual. They are especially less bullish on pharmaceutical companies. Retailing is one sector option buyers look to be bullish on.
