Put/Call Ratio Extremes
NO EDGEMarket-wide, very high equity put/call volume has marked fear and very low readings complacency; a contrarian dial at extremes only. For single stocks the evidence runs the other way: heavy put buying has preceded weaker returns.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 7.4% | 11.9% |
| Return per unit of risk (Sharpe) | 0.45 | 0.84 |
| Worst fall (max drawdown) | -32.7% | -24.8% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): 8.7% a year against 12.4% for the benchmark; Sharpe -- in the training years, 0.51 after.
After 25 bps of trading costs: 2.2% a year. WITHIN RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 2010s | 6.1% | 9.3% |
| 2020s | 8.5% | 14.1% |
// THE IDEA, AS PUBLISHED
Practitioner indicator; Simon & Wiggins (2001), Journal of Futures Markets; Pan & Poteshman (2006), Review of Financial Studies · 2001
- Market-level equity put/call, smoothed, vs its own history
- Fade extremes: add equity after fear spikes, trim after very low readings
- Mid-range readings carry no signal
- Do not apply the contrarian reading to single stocks
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 20:47 ON THE QUANTGPT WAREHOUSE. COMPANIES THAT LATER DELISTED ARE NOT IN THIS UNIVERSE YET (A FIX IS IN PROGRESS), SO THE RESULT LEANS TOWARD SURVIVORS. FUNDAMENTALS BY FILING DATE. NOT INVESTMENT ADVICE.