Thursday, August 4, 2011

Options 101 - NYSE Tick

The NYSE Tick represents the number of stocks ticking up minus the number of stocks ticking down on the NYSE, it can be used as a barometer for short term momentum of stocks trading on all US Exchanges.

Tick readings can be used for gauging bullish or bearish momentum.For example, if the Tick reads +200, it is considered a bullish signal as 200 more stocks on the NYSE are ticking up than are ticking down.
  • If the Tick should read -354, it is considered a bearish signal as 354 more stocks are ticking down then are ticking up.
Furthermore, the Tick can also be indicative of overbought or oversold levels. For example, if the Tick should rise over +1000, the market will likely soon reverse because it has become over bought. The reverse is true as well, if the Tick should fall below -1000, the market will likely reverse because it has become very oversold.
For example, at around 11:50 am today, there was an extreme down tick reading of -1743. At roughly the same time, the SPY dipped below the lower Bollinger band to 121.76. Shortly after, the SPY reversed and went to 123.13. The charts below depict this.

You can also see high Ticks that were great to reload shorts on this trend down day.

Some traders will use extreme Tick readings as a trade signal to fade the market. Extreme readings can also be used as a signal to close out positions in anticipation of a reversal. For example, If you happen to be long when the Tick begins to rise over +1000 or short when the Tick begins to fall below -1000, one may consider lightening up on your positions or close them entirely in anticipation of a reversal.
Despite its benefits, there are issues that traders should be aware of, particularly short term traders that trade the ES contract that use Tick data.
  • Many NYSE stocks trade infrequently, which as a result, do not contribute to the Tick for longer periods.
  • Because Tick data monitors the broad NYSE, extreme readings may be due to strong buying or selling among small capitalization stocks.
  • For traders interested, a solution to this issue would be to use the Tick16 Index, developed by Tickquest, Inc.
  • It is a different version of the Tick that utilizes upticks and down ticks from the 500 stocks in the S&P.

*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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