ISEE Sentiment Indicator Explained: How It Works and Why It Matters in 2025

Thomas J Catalano, a Certified Financial Planner and Registered Investment Adviser in South Carolina, founded his financial advisory firm in 2018. His extensive expertise spans investments, retirement planning, insurance, and comprehensive financial strategies.

What Is the ISEE Sentiment Indicator?

The ISEE Sentiment Indicator is a specialized gauge of market sentiment that analyzes the ratio of opening long call options to opening long put options purchased by retail investors on the International Stock Exchange (ISE), a leading electronic derivatives platform.

Key Highlights

• The indicator measures market sentiment by comparing the volume of opening long calls against opening long puts.
• It exclusively tracks retail customer transactions, excluding market makers and institutional trades to better reflect genuine investor sentiment.
• While innovative, its limitation lies in monitoring only trades executed on the ISE Exchange, which represents a fraction of total options volume.

How Does the ISEE Sentiment Indicator Work?

The indicator focuses solely on retail investor purchases, as these are considered the most authentic representation of market sentiment. It is calculated using the formula:

ISEE = (Number of Long Call Options Purchased / Number of Long Put Options Purchased) × 100

A value above 100 indicates bullish sentiment, meaning investors are buying more call options anticipating a market rise. Conversely, a value below 100 signals bearish sentiment, with more puts purchased as protection against declines.

The ISEE’s approach excludes market makers and institutional clients, whose trades are often strategic and not reflective of true market outlooks. This exclusion aims to provide a clearer picture of retail investor expectations.

Why Is the ISEE Sentiment Indicator Important?

Unlike traditional put-call ratios that consider all options volume, the ISEE focuses on opening long positions by retail investors, who typically buy calls when optimistic and puts when cautious. This specificity helps investors and traders better interpret market moods and potential turning points.

Considerations and Limitations

While the ISEE offers valuable insights, it covers approximately 7% of U.S. options volume, as reported by the Options Clearing Corporation (OCC). The majority of volume on the ISE includes market maker and institutional trades, which are excluded from the index calculation. Therefore, the ISEE should be used alongside other indicators, such as the traditional put-call ratio, for a more comprehensive market analysis.

In summary, the ISEE Sentiment Indicator is a powerful tool for gauging retail investor sentiment in 2024, providing traders and investors with actionable insights to inform their market strategies.

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