ISE Sentiment Index

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The ISEE Index [1] is a sentiment index created by the International Securities Exchange that calculates a put/call value that can help investors look at how their investor peers are viewing the bullishness or bearishness of a particular stock (on which ISE has a corresponding option).[2]

What Is the ISEE Index?

How important are investors’ views of the market as an indicator? Crucial, says the International Securities Exchange (ISE), which created and calculates (with proprietary ISE option trade data) the ISE Sentiment Index (ISEE). This is not the typical “tradable” index, but rather a put/call value that helps market participants determine how investors as a whole are expressing their actual market view of a particular stock. In other words, it’s an investment tool for options traders and equity investors looking to supplement and validate their own market views.[3][4][5]

Sentiment values are calculated for more than 1700 securities that trade options on ISE (no subscription fees for intra-day or historical ISEE data) and are available going back to April 2002. In short, the higher the reading in the ISEE, the bigger the discrepancy between the optimistic activity (calls) and the pessimistic activity (puts).

ISEE Select

Those interested in a sentiment index on indexes, ETFs, etc. (e.g., QQQQ) have access to another ISE sentiment indicator subscription product, ISEE Select. This Index now is available as an XML feed (for a fee), new in September 2007.[6]

Calculation Method

The Index takes into account only opening long customer transactions to calculate bullish/bearish market direction. Obviously, call buying is seen when traders are optimistic about a stock’s prospects and put buying is a tool for those with a negative outlook. Composite opening long transactions are thought to be the best representation of market sentiment because investors often buy calls and puts to register their market viewpoint.

Because it takes into account the investor point of view only, the ISEE Index does not factor in market maker and brokerage firm trades; they are not considered representative of true market sentiment due to their highly specialized function. As such, the ISEE calculation method allows for a better measure of true investor sentiment than traditional put/call ratios.

The ISEE value is computed by dividing opening long call options by opening long put options. For example, if 5,000 call options to open traded and 2,000 put options to open traded, the sentiment value would be 250. Higher sentiment values indicate a bullish outlook.

The intra-day values are updated automatically every 20 minutes. The approximate times that the new values can be retrieved: 10 minutes, 30 minutes and 50 minutes after the hour. The 10-, 20-, and 50-day moving averages are updated once a day.

Exporting Data to Test Your Data

With the ISEE, users can export historical data to Excel and manipulate and test the data in any manner desired, from plotting it against the base security to designing trading systems around it.

References

  1. "ISEE Index”. International Securities Exchange.
  2. "ISEE on the Cake?” 12/1/03. Barron's.
  3. "Contrarians are Smiling,” 3/13/07. MarketWatch.
  4. "A Different View of the ISEE," 2/16/06. Schaeffer's Investment Research.
  5. "Moving the Market — Tracking the Numbers," Wall Street Journal 11/7/05. Wall Street Journal.
  6. "A Simple, Practical Use for ISEE Select," 4/2/07. SentimenTrader.
Last modified on 30 August 2016, at 08:14