Education & Tips

How To: WhaleStream Option Flow Sentiment Tool

How are option market sentiments calculated? What is a Put to Call Ratio? How to use WhaleStream's Option Flow Sentiment Tool.

How To: WhaleStream Option Flow Sentiment Tool

How Are Option Market Sentiments Calculated?

-Common practice for calculating market sentiment is by calculating the PUT to CALL Ratio.

-The PUT to CALL Ratio can be calculated by taking the total number of PUTS divided by the total number of CALLS. The result is going to give you the PUT to CALL Ratio.

-The value of the PUT to CALL Ratio is going to determine the sentiment.

Neutral Sentiment: If the PUT to CALL Ratio is between 0.7 - 1.0, the sentiment is considered Neutral.

Bullish Sentiment: If the PUT to CALL Ratio is BELOW 0.7, the sentiment is considered to be Bullish.

Bearish Sentiment: If the PUT to CALL Ratio is ABOVE 1.0, the sentiment is considered to be Bearish.
Put to Call Ratio Scale - WhaleStream

What most platforms show:
-Volume based PUT to CALL ratio.
-Only based on the buy side (Filled on Ask Side).

What WhaleStream shows:
WhaleStream's Sentiment Analysis goes a little deeper than other platforms.

All of the examples below are viewing the same day's data. The only differences are when in "Buy Flow", the orders on the Sell side are not included and when in the "Sales Flow" the orders on the Buy side are not included. When in "Merged Flow", the orders from both the Buy side and Sell side are included. The only other difference is viewing either the volume based sentiment or the premium based sentiment.

Volume-Based Ratio:
-
For Buys: Put to Call Ratio of Volume. (See below example)
Buy Side - Volume Based Option Flow Sentiment (Put to Call)

-For Sales: Call to Put Ratio of Volume. (See below example)
Sale Side - Volume Based Option Flow Sentiment (Call to Put)

-For Merged: The Total Bearish to Bullish Ratio based on combined bought and sold Volume. (Sold calls are added to bought puts to make up the total Bearish Volume and Sold Puts are added to the Bought Calls to make up the total Bullish Volume)
Merged Flow - Volume Based Option Flow Sentiment - (Bought Puts + Sold Calls)/(Bought Calls + Sold Puts)
Premium-Based Ratio:
-
For Buys: Put to Call Ratio of Premiums. (See below example)
Buy Side - Premium Based Option Flow Sentiment (Put to Call)

-For Sales: Call to Put Ratio of Premiums. (See below example)
Sale Side - Premium Based Option Flow Sentiment (Call to Put)

-For Merged: The Total Bearish to Bullish Ratio based on combined bought and sold Premiums. (Sold calls are added to bought puts to make up the total Bearish Premium and Sold Puts are added to the Bought Calls to make up the total Bullish Premium)
Merged Flow - Premium Based Option Flow Sentiment Bought Puts + Sold Calls)/(Bought Calls + Sold Puts)
Why is this important?
-
When you only look at buys, it only shows you half of the picture. To know the true sentiment, you need to examine the buys and sales. 

-Similarly, when looking solely at the volume, it only shows you half of the picture. Higher volume doesn’t necessarily mean more money/premium was being spent in that direction. If the average PUT contract cost was $0.60 and the average CALL contract cost was $2.00, it would take more than 3x the volume for the premiums to level out. Knowing where the premium is flowing is equally (if not more) important than the volume. 

For the most accurate sentiment reading, we recommend switching on the merged flow setting so that the calculation is examining both the buys and sales.

 
-WhaleStream lets you view the sentiment based on either the Volume OR the Premium and recommend you always check both.
-Ideally, you would want confluence.
-If both the Premium and Volume don't provide the same sentiment reading, then the sentiment is weak or mixed.

To switch between Premium and Volume based sentiments, simply click on any of the sentiment gauges above your dashboard.  

WhaleStream's Sentiment Tool Calculates Based On What Ever Data Is Currently On Your Dashboard.
If you want to see short term sentiment, you can apply a filter from the advanced filter panel to only view close dated expirations.
Only want to view short dated sentiment on $AAPL ? ... Filter to $AAPL and set the expiration date range accordingly and quickly see the sentiment re-calculate to reflect what you've filtered. 

This should help to understand how the sentiments are calculated on the WhaleStream dashboard. As always, reach out with any questions to support@whalestream.com, in WhaleStream's side chat or in our free discord. 

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