I have been checking the put call ratio for SPY and want to know if it is good for timing my entries.
Some people say it is helpful as a contrarian indicator, but I am unsure about its reliability. I have tried making trades based on extreme readings, but my results have been mixed.
Do others use this for analysis, or is it just a lagging indicator?
SPY put call ratio accuracy drops significantly during high volatility periods. Data shows it works best when:
• VIX below 25
• No major events scheduled
• Combined with volume analysis
Standalone usage produces random results.
Put call ratio can be helpful at times. I see it work around 60%.
Mixed results sound about right for the put call ratio. The timing can be tricky because extreme readings don’t always mean immediate reversals.
What works better for me is combining it with price action. When SPY hits support or resistance levels and the put call ratio shows extreme readings, that’s when I consider entries.
Using it alone hasn’t been reliable in my experience. The market can stay irrational longer than expected.
The put call ratio is more effective when you understand the market condition. In a trending market, extreme readings can persist for weeks. However, in a ranging market, it is more reliable for spotting reversals.
Waiting for the ratio to hit extremes and shift back toward normal tends to provide better signals than acting on the initial extreme. The SPY ratio is generally less noisy compared to broader market ratios due to its liquidity.
Still, don’t rely on it to work every time. Market sentiment changes quickly, making these readings potentially outdated.
Lost $800 last month following put call ratio signals blindly during that tech selloff. The readings stayed extreme for days while SPY kept dropping.
Now I only watch it during earnings weeks or Fed announcements when sentiment shifts happen fast. Got a solid win on a call option when the ratio spiked above 1.2 right before the last FOMC meeting.
Treat it like background noise, not your main signal.