AI
Thursday, January 22, 2004 8:48:10 AM
When in doubt, it’s best to ask smart people. Has anyone on this august board looked into the ISEE indicator. I first read about it in Barron’s in a Dec 1st article. It may or may not address some of the fuzziness in the p/c ratio. The ISEE is basically a c/p ratio that claims to factor out “transactions made by market makers and firms”.
The brief description below is from the ISE website at
http://www.iseoptions.com/marketplace/statistics/sentiment_index.asp
The ISE Sentiment Index (ISEE) is designed to show how investors view stock prices. The ISEE only measures opening long customer transactions on ISE. Transactions made by market makers and firms are not included in ISEE because they are not considered representative of market sentiment due to the often specialized nature of those transactions. Customer transactions, meanwhile, are often thought to best represent market sentiment because customers, which include individual investors, often buy call and put options to express their sentiment toward a particular stock.
Every time an investor buys an opening long call or an opening long put on the ISE, ISEE captures that transaction and processes it as part of a broader algorithm that measures buying activity within ISE, the world’s largest equity options market. By collating the buying decisions of options investors (persons other than broker-dealers), it may be possible to gain a better understanding of marketplace trends, which can help refine investment decisions.
ISEE is computed by dividing opening long call options bought by customers by opening long put options bought by customers.
The index is then expressed as above 100 or below 100
ISEE > 100
More customers have opened long call options than put options. Call options increase in value when the underlying stock price increases.
ISEE < 100
More customers have opened long put options than call options. Put options increase in value when the underlying stock price decreases.
I’ve just started looking at it, and it appears to have hit an extreme that looks problematic. The 304 reading (3 times as many calls purchased) on Tuesday looks troublesome.
Based on the chart I have, the peaks and extremes appear more ominous if they occur when the short term trend for the ISEE is above the longer term trend..in the attached chart when the 10-day sma is above the 34-day sma (arbitrary choices on my part). In other words, a spike up in call buying when the short term trend in call buying is already high.
I can’t point to any other discussions of the merit of the indicator.
TIA for any input. It’s off to work I go. Give ‘em hell today!
Stiv
The brief description below is from the ISE website at
http://www.iseoptions.com/marketplace/statistics/sentiment_index.asp
The ISE Sentiment Index (ISEE) is designed to show how investors view stock prices. The ISEE only measures opening long customer transactions on ISE. Transactions made by market makers and firms are not included in ISEE because they are not considered representative of market sentiment due to the often specialized nature of those transactions. Customer transactions, meanwhile, are often thought to best represent market sentiment because customers, which include individual investors, often buy call and put options to express their sentiment toward a particular stock.
Every time an investor buys an opening long call or an opening long put on the ISE, ISEE captures that transaction and processes it as part of a broader algorithm that measures buying activity within ISE, the world’s largest equity options market. By collating the buying decisions of options investors (persons other than broker-dealers), it may be possible to gain a better understanding of marketplace trends, which can help refine investment decisions.
ISEE is computed by dividing opening long call options bought by customers by opening long put options bought by customers.
The index is then expressed as above 100 or below 100
ISEE > 100
More customers have opened long call options than put options. Call options increase in value when the underlying stock price increases.
ISEE < 100
More customers have opened long put options than call options. Put options increase in value when the underlying stock price decreases.
I’ve just started looking at it, and it appears to have hit an extreme that looks problematic. The 304 reading (3 times as many calls purchased) on Tuesday looks troublesome.
Based on the chart I have, the peaks and extremes appear more ominous if they occur when the short term trend for the ISEE is above the longer term trend..in the attached chart when the 10-day sma is above the 34-day sma (arbitrary choices on my part). In other words, a spike up in call buying when the short term trend in call buying is already high.
I can’t point to any other discussions of the merit of the indicator.
TIA for any input. It’s off to work I go. Give ‘em hell today!
Stiv
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