The International Securities Exchange launched the ISE Sentiment
Index (ISEE) in 2002. This index is to
gauge retail investors’ sentiment in the market by measuring the number of
opening call options vs. opening put options, which are placed orders on the
International Stock Exchange platform.
The ISE Sentiment
Index is calculated as the ratio of call option volume to put option volume,
and is normalized by multiplying 100.
Here is the formula
ISEE=Opening Calls
/Opening Puts x 100
This quantitative measurement filters out the transactions made
by market makers and financial institution firms which are involved in hedging, asset protection, or other elaborate
schemes instead of pure speculation.
Please keep in mind, the money makers and large institutions
purchase put options in order to protect a large amount of long positions, and
reduce cost basis, rather than take advantage of speculating on market
movement.
According to Barron’s, the ISEE data
focuses only on calls and puts transaction amounts made by retail investors,
such as individual investors, money managers, and hedge funds managers,
etc. Therefore, retail investors’
transaction patterns and behavior is believed to be able to determine the
market sentiment from an expert’s view. This is due to the fact that the data is not significantly
skewed by a large quantity of options traders or money makers.
Credited to: http://www.ise.com/market-data/isee-index/
If you want to know more about ISE
Sentiment Index (ISE), you are welcome to read more:
Thanks for your visiting and reading.
Have a successful trading!
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