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Investor Profile of RUT v. SPX order flow

Discussion in 'Options' started by AKJ, Apr 6, 2016.

  1. AKJ

    AKJ Well-Known Member

    I'm doing some analysis on the forecasting power of RVX and VIX, and am trying solicit some input from others in the community regarding the investor profile that might generally characterize the order flow in RUT Options v. SPX Options.

    Does Smart Money usually flow to one index's options over another, or is it fairly unbiased? I have my own opinion on this, but it may be biased by what I have already seen in the data, and am hoping to solicit some unbiased opinions to support or contradict what I'm thinking.

    Thanks for the input!
    Last edited: Apr 6, 2016
  2. ACS

    ACS Well-Known Member

    The S&P 500 is the basis of the most active ETF (SPY), Index options (SPX) and stock index futures contract (ES). It is also the most common benchmark that managed money is measured against. It dwarfs the activity in the Russell 2000 and its derivatives so I would expect it to be a more reliable indicator. That said, there is always a normal rotation of investment capital between large, medium and small cap stocks.
  3. AKJ

    AKJ Well-Known Member

    Hi ACS,

    Thanks for your response. I agree with everything you said.

    I guess I should have been more specific in my original post (I have subsequently made the change). I am hoping to gather thoughts specifically on order flow of RUT v. SPX Options, not the stocks in the underlying index.

    As an example, it is a commonly held belief that Equity-only Put/Call ratio is a predictive, contrarian indicator, whereas the Index Put/Call ratio or Combined Equity+Index Put/Call ratio has less predictive power because the Index Option demand usually comes from Institutional (Smart) money while Equity Option demand usually comes from Retail money. I am not saying I do or don't believe in the predictive power of these indicators, just that it is a commonly reference indicator related to option activity.

    I am wondering if there is a similar rule-of-thumb as it relates to type of Money that flows into SPX options versus RUT options. An example would be: "SPX options are usually traded by Institutions whereas RUT options are usually traded by Retail"

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