BEHAVIOURAL FINANCE - SECTION V - CHAPTER 37 - Sentiment Measures from Market Data

1. Module - 56
Sentiment Measure
from Market Data
CMT LEVEL - I

2. Sentiment Measure from Market Data
Commitment
of Traders
Data
VIX Open Interest
Insider
Trading
Short Interest

3. Commitment of Traders Data
• The Commitment of Traders (COT) report is a weekly publication
that shows the aggregate holdings of different types of participants
in the U.S. futures market.
• The Commitment of Traders report is published every Friday by the
Commodity Futures Trading Commission (CFTC) at 3:30 Eastern time
and is a snapshot of the commitment of the classified trading groups
as of the Tuesday that same week.
• The Commitment of Traders report seeks to provide investors with
up-to-date information on futures market operations and increase
the transparency of these complex exchanges.
• It is used by many futures traders as a market signal on which to
trade.

4. VIX
• Created by the Chicago Board Options Exchange (CBOE), the
Volatility Index, or VIX, is a real-time market index that
represents the market's expectation of 30-day forward-looking
volatility.
• Derived from the price inputs of the S&P 500 index options, it
provides a measure of market risk and investors' sentiments.
• It is also known by other names like "Fear Gauge" or "Fear
Index."
• Investors, research analysts and portfolio managers look to VIX
values as a way to measure market risk, fear and stress before
they take investment decisions.

5. Insider Trading
•Insider trading is the buying or selling of a publicly traded
company's stock by someone who has non-public,
material information about that stock
•Material information is any information that could
substantially impact an investor's decision to buy or sell
the security. Non-public information is information that is
not legally available to the public
•Insider trading can be legal as long as it conforms to the
rules set forth by the SEC

6. Open Interest
•Open interest is the total number of outstanding
derivative contracts, such as options or futures that
have not been settled.
•Open interest equals the total number of bought or
sold contracts, not the total of both added together.
•Open interest is commonly associated with the futures
and options markets.
•Increasing open interest represents new or additional
money coming into the market while decreasing open
interest indicates money flowing out of the market.

7. Open Interest

8. Short Interest
• Short interest is often expressed as a number yet is more telling as a
percentage.
• An increase in short interest signals that investors have become more
bearish, while a decrease in short interest signals they have become
more bullish.
• Extremes in short interest are considered by some traders to be a
contrarian indicator.
• For example, an extremely high short interest for a stock may indicate
that investors have become too bearish, and the price may actually be
due for a reversal to the upside.
• Short interest is typically published by the stock exchanges once per
month, although the Nasdaq publishes a report twice a month

9. The Difference Between Short Interest and the Put/Call Ratio
• Short interest and the put/call ratio are both indicators of
market sentiment.
• Short interest focuses on the number of short shares
outstanding.
•The put/call ratio uses the options market for its data. Put
options are bearish bets, while calls are bullish bets.
• Changes in the put/call ratio are therefore another gauge
that can be used to determine whether investors are
expecting prices to rise or fall in the future.