Stop looking at the put/call ratio. It is frequently misleading.
5,000 calls bought at $0.05 on the ask is only a $25,000 bet.
1,000 calls bought at $2.00 on the ask is a $200,000 bet.
But which trade makes the put/call ratio more bullish? The first one, and that’s why our option activity algorithm carries MUCH more weight than the put/call ratio.
We only analyze trades ocurring at or above the ask, and trades occurring at or below the bid. We ignore everything in between the bid and ask. We also ignore straddles, buy writes, and spreads. And we don’t look at the number of calls and puts, we look at the dollar amount.
Calls bought at or above the ask
Puts sold at or below the bid
Puts bought at or above the ask
Calls sold at or below the bid
The dollar amounts are then kept as a running total every 15 minutes of the trading day. We also factor in the news of the day, and the setup of the daily chart.
Trades occurring at or above the ask (most likely opening trades) carry much more weight in the algorithm than trades occurring at or below the bid (most likely closing trades).
To get out trades in real time off our proprietary options activity algorithm, we offer a free 7 day trial membership.