Many are convinced that the relation between Put and Call can give some clues over the possible market tops and bottoms. This seems logical on principle, but the method used to handle that information is not the right one.

When looking at each one of the two types of options, we cannot tell how many such contracts are net purchases by small traders satisfied by the market makers and how many of the options sold were bought previously.

This is the same as the contract options traded to cover long or short positions that do not represent a decision in any direction of the market and cannot be separated.

Another volume of trade that cannot be separated has to do with options traded with the only purpose of a volatility strategy, regardless of the trend of the market.

And last are the synthetic positions adopted when Puts quote at a different price of Calls and they should be the same. Also, when the bid ask spread is too wide. Example of a synthetic position: one long Call equals the underlying long, plus one long Put.

How could this indicator be improved?

There could be a way to build a very reliable indicator of the Put/ Call ratio, but it is not available, and I doubt very much that it will ever be.

This indicator should be made up with end of day data of Warrants, because they are the only instruments that the customer cannot start selling unless they were bought previously, because of this, we can clearly identify the group to which the buyer and seller of each trade belongs.

Obviously, from the trade of each type of Warrant, the purchases made by the issuing company from customers who decided to sell the Warrant after buying it, should be deducted. The rest would be without any doubt net purchases of that type of Warrant by small traders.

The group of buyers is perfectly identifiable because neither professionals nor institutions operate with Warrants. These instruments can neither be used in volatility trading by anyone because it would be a losing strategy.

Adding the data from all stock Warrants trading on every continent, we could obtain a very reliable indicator showing what should not be done in the markets. For now, we can dream and long for this piece of information, like an utopia of a vain speculator, but for the record, a select group already have this information in real time.

There is a small group of powerful people who have first hand confidential information, but are not such fools as to appear on Forbes list. Although they never use public transport, they could all fit in a minibus, and their activities can be glimpsed in the following videos:

The Money Masters