An Alternative For Measuring Market's Negative Sentiment

With the real possibility of the U.S. (and the world economy) leaping into recession before year end - perhaps triggered by the collapse of the Euro currency and the European Union - investors are jittery and three bellwether indicators attest of this nervousness:

1. VIX: a measure of volatility for the S&P 500 Index (SPY) traded above 30 since the beginning of August. Yesterday it closed at 33.38.
2. iShares Barclays 20+ Year Treasury Bond ETF (TLT): Yield on long-dated Treasuries are at record lows, with TLT making a new high for the year at $114.93.
3. SPDR Gold Trust ETF (GLD): Gold still trades near record high levels around $1,800, even though the metal corrected sharply adter the Swiss Franc lost its safe haven status after the SNB pegged its currency to the Euro.

Here we propose a different measure of market's negative sentiment by comparing the value of deep out-of-the-money and at-the-money put options on the S&P 500 Index that expire in 43 days, on October 22, 2011. What we find is downright scary!

Read the full article here.