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.
If you want to know more
about ISE Sentiment Index (ISE), you are welcome to read more:
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trading!
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