Options Action

This recent rally has sparked a lot of action in the options market. My personal belief is that this rally is temporary and that the market has further to fall. Options trading seems to support this.

There is a large volume of August SPY calls near the money, but an even larger volume of August SPY puts. This, as well as other factors in the market such as market PE ratio, lead me to believe that we will see the market edge lower in the coming months before a long term recovery.

If you look forward to the December options, however, the volumes of calls and puts are much more even. Further ahead in the June options, there is an overwhelming indication that the market will be recovering due to the high ratio of calls to puts being purchased. To sum it up, the current options trading indicates a continuance of this market slowdown through later this year and the beginning of a recovery sometime between late this year and mid next year.

Disclosure: I do not own SPY or any of its derivatives