October 17, 2008
Why is it dangerous to trade with the options put/call ratio, buying high interest puts when the ratio is high
skahhh asked:
and high interest calls when the ratio is low?
and high interest calls when the ratio is low?
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Comments on Why is it dangerous to trade with the options put/call ratio, buying high interest puts when the ratio is high »
I would believe that the main risk associated with trading options when either ratio is high is that the volatility associated with the option tends to increase during these times which causes the option price to also increase.
With that said, if you make the wrong purchase, you can see your premium deteriorate pretty fast (depending on how much time you have to expiration).
The safest way to buy when these ratios are high, is to be a contrarian, and open a long term debit spread