ISE Sentiment Index

The International Securities Exchange (ISE) is an all-electronic options exchange. It has been steadily gaining market share since its relatively recent formation, and in 2005 it often traded more options contracts than any other exchange, including the Chicago Board Options Exchange. In its capacity as a leading options exchange, the ISE has a wealth of information at its fingertips. In 2002, it unveiled a sentiment index based on the volume traded there. As a potential improvement to the put/call data provided by the CBOE, the ISE created its index using only those options that are bought to open. This gives us a more "true" feel for the sentiment behind the options trades, as the data is not skewed by large institutional options sellers. The interpretation of the ISE Sentiment Index is very straightforward. When it is high, it shows that customers have been buying a lot of calls options in relation to put options. That means that they are likely making heavy bets that the market will rise. Conversely, when the Index is low, it means that traders are buying relatively few calls compared to puts - a sign of pessimism. Like all other contrary indicators, we want to look for higher market prices when pessimism is very high (coinciding with a low Index reading) and look for lower market prices when traders are very optimistic (i.e. when the Index is high). As noted above, we should expect a market decline when traders are very optimistic. Therefore, when the ISE Sentiment Index shows a daily reading of 250 or above (meaning traders are buying 250 calls for every 100 puts), or the 10-day moving average is 200 or higher, we should be cautious. We are at 230. [HT zerohedge and sentimenttrader]

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ISE Sentiment Index

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