The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about profiting from extreme investor sentiment. There actually is a pretty decent body of research out there from a lot of different institutions that show or prove that extreme levels of investor sentiment tend to be contrarian indicators for the market. For example, if we see an investor sentiment survey that shows that most people who are invested in the market are extremely bullish about the next six months or a year or two years or whatever the timeframe is, that tends to be a little bit more of an extreme contrarian indicator once they reach these higher levels, that might actually predict that the market is reaching a peak or that the market has already started its peaking or topping out process. The same thing can be true in reverse. When investors are highly pessimistic and bearish, that tends generally to be correlated with bottoms of markets. Now, this is not always the case