Options Montage: Sentiment entered the caution territory

Market Monster
4 min readDec 7, 2020

Institutional gang’s activity was bullish again on Thursday. The action had a bit of a different look to it though as there was a lot of unusual activity in some hot individual names which includes:

$Nano Dimension Ltd(NNDM.US)$ little buy strong again and attracting some small put selling,

$Magnite Inc(MGNI.US)$ option order flow hit 93.2% bullish

$Roku Inc(ROKU.US)$ intraday call volume spiked

$Arlo Technologies Inc(ARLO.US)$ call sweepers tack on some more

Another round of solid buying in $Snap Inc(SNAP.US)$

$Twitter Inc(TWTR.US)$ continued its bullish flow show…

Travel names also saw a rush of buying off the earlier session.

So there have been some big moves out there in many pockets, they may find the laggards next.

On the sentiment front

The short-term sentiment was relatively little changed, late-day market fade gets the assistant there. But on the retailer side, AAII investor sentiment officially entered caution territory as the details are shown below

source: AAII

The percentage of individual investors describing their short-term outlook as “bearish” is at an 11-month low in the latest AAII Sentiment Survey. The latest AAII Sentiment Survey also shows optimism rebounding back to an unusually high level.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.8 percentage points to 49.1%. Optimism is above its historical average of 38.0% for the fourth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.0 percentage points to 28.3%. Even with the increase, neutral sentiment remains below its historical average of 31.5% for the 45th time out of the past 47 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 4.8 percentage points to 22.7%. Pessimism was last lower on January 1, 2020 (21.9%). Pessimism is below its historical average of 30.5% for the fourth consecutive week.

As noted above, bullish sentiment is back at an unusually high level (more than one standard deviation above its historical average). Historically, such readings have been followed by lower-than-average six- and 12-month returns by the S&P 500 index. Given the possibility of health conditions vaccines soon being available, the historical trends may not be repeated.

Pessimism is near the bottom of its typical range. The breakpoint between typical and unusually low readings is 21%.

The positive results from Pfizer’s and Moderna’s late-stage trials for the health conditions vaccine have made many individual investors either more optimistic or, at least, less pessimistic. Concern about the shorter-term trends in health conditions and the resulting economic impact remains, however. Also influencing individual investors’ sentiment are the results of the recent election, valuations, and interest rates.

Weekend

As always, respect the trend and price action. Maintain that discipline to your trading rules. Keep booking those flows and sentiments. Leave “swinging for the fence” to the beginners. Profits pay the bills, not bragging rights and happy good weekend! Stay safe stay alerted and be smart!

Notable bettings toward broader market indices ETF on 12/3

Market-wide option volume of 35.8m contracts was 7% above recent average levels, with calls leading puts 2 to 1. Single stock and ETF products saw relatively heavy volume, while Index flow was moderate.

Individuals breakdown by sectors (12/3 notable bets)

Most active sectors included Consumer Services, Industrials and Health Care while Oil & Gas and Telecommunications were relatively light. Of the 3,649 stocks with listed options, 2,125 (58%) closed higher, and 1,342 (37%) lower. Among the 500 most liquid single stocks, 30day implied volatility was lower for 330 and higher for 135.

Tech

Industrial

Consumer Cyclical

Financial

Communication Services

Healthcare

Energy

Real Estate

Basic Materials

Consumer Defensive

Utilities

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