Another version of the options index

I read an article today that got me thinking about this index. The theory is that most speculators buy call options near the tops and buy put options near the bottoms. Therefore, you can use an options index as a contrarian indicator. Even better since 2004, the CBOE has given us data that allows us to split equity options and index options. Simplistically the big boys use the options index and the speculators use the equity index more. The speculators help us to pick euphoric highs and lows since they are usually wrong at the tops and bottoms.

Looking at the chart and the history there is some pretty favorable data that may help us confirm the next top. The way to use this chart is not to look for a peak or trough in the index and call a bottom or a top, but to use the chart to help confirm a top or bottom and tell you when things are getting a little out of hand. I have also added moving averages to help smooth out the data.

Right now the index and 30 day MA are below .60. This has only occurred a few times in the past few years and not once since the 2007 top. Those times have also in all 4 instances called decent few months tops.

This is just another indicator that is helping me get comfort that the market's top will soon be upon us.