Sentiment: methodology for the fear and greed index, put/call ratio and COT

Advanced8 min read · updated 24 October 2026 · 6 sources

The Sentiment page gathers what investors are doing and feeling right now: Portfolio Lab's own fear and greed index, the put/call ratio, futures market positioning from the COT reports, financial stress and liquidity, as well as signals across asset classes. Every metric comes with a percentile rank and z-score, plus a table of what happened in the market afterward. This methodology describes everything exactly as the code calculates it.

The fear and greed index

The well-known Fear & Greed Index of a US broadcaster is proprietary. Portfolio Lab therefore calculates its own index using an open method, built from six components. Each component measures one facet of sentiment on every trading day:

The raw values come in different units. Each component is therefore translated into points from 0 to 100: its percentile rank among the values of the last two years up to that day, without any later values. The index is the average of the points as soon as at least four of the six components have values. Below 25 points the reading is extreme fear, below 45 fear, up to 55 neutral, up to 75 greed, and above that extreme greed.

The put/call ratio is not part of the index, because no long history of it is freely available; it stands on its own on the page. The index starts in 2004, once enough components have two years of history behind them.

Put/call ratio

The ratio divides traded puts by traded calls (volume) or open puts by open calls (open interest). To compute it, Portfolio Lab adds up all expiries of the options on the three large index ETFs tracking the S&P 500, the Nasdaq-100 and the Russell 2000, and shows the ratio for each ETF and for all three together, plus the average of the last five days. Because earlier days cannot be retrieved, the app takes a snapshot every weekday after 16:15 New York time and stores it; the history begins with the first snapshot. A snapshot taken during trading hours counts as preliminary and is replaced later.

A high ratio means a lot of hedging. Contrarian investors read this as a sign that the fear is already priced in. Research finds information in option volume mainly for newly opened purchases on individual stocks (Pan and Poteshman 2006); the aggregate ratio here is a coarser measure of sentiment.

COT positioning

Every Friday, the US regulator of futures markets publishes the Commitments of Traders (COT) as of the preceding Tuesday. Portfolio Lab uses futures only and two reports: for equity indices, government bonds, currencies, the VIX and crypto, the Traders in Financial Futures report (dealers, asset managers, hedge funds, other reportables, small traders); for commodities, the Disaggregated report (producers, swap dealers, managed money, other reportables, small traders). Hedge funds and managed money, respectively, count as speculators.

For each market, the page shows the speculators' net position (long minus short) in contracts and as a percentage of open interest, the change on the previous week, the z-score over the last three years and the COT index:

Futures market positions are related to later returns: hedgers' net positions explain part of the risk premiums of currency and agricultural futures (Bessembinder 1992), and speculators' positions go hand in hand with later excess returns without speculators being better forecasters (Wang 2003). In interest rate futures, hedge funds are often net short because they buy bonds and sell futures (basis trades). That is not a bet on rising rates.

Financial stress and liquidity

Financial stress indices condense many market series into one number; Kliesen et al. (2012) give an overview of the indices developed after the financial crisis. The page shows four: the St. Louis Fed Financial Stress Index (weekly), the Chicago Fed's NFCI (weekly, financial conditions) and its version adjusted for the business cycle and inflation, the ANFCI, plus the daily OFR Financial Stress Index with its categories credit, equity valuation, safe assets, funding and volatility (Monin 2019). For all of them, 0 means average stress and positive values more stress than usual.

Rates and liquidity: the 10-year real yield on inflation-protected US Treasuries, breakeven inflation (nominal minus real) and Fed net liquidity: total assets minus the Treasury's account minus reverse repos, in billions of US dollars on the weekly balance sheet dates.

Cross-asset and options market

Ratios of two assets show where money is flowing: copper to gold, cyclicals to defensives, small caps to large caps, equal-weighted to cap-weighted, high-yield to government bonds, emerging to developed markets. The level of these ratios drifts over the long run; rank and z-score therefore refer to the change over 63 trading days. Trend breadth counts how many of 12 asset class ETFs are above their 200-day moving average. From the options market come the SKEW (the price of crash protection), the VVIX (volatility of the VIX) and the three-month implied correlation: how strongly large stocks will move together according to option prices.

Percentile, z-score and what came next

Each tile shows the metric's percentile rank and z-score over the chosen period: 3, 5 or 10 years or the full history. Below 20%, a value counts as low; above 80%, as high. Green stands for risk appetite, red for stress. Depending on the metric, a high value means one or the other.

The What came next table classifies every day of the history: on each day, the metric is expressed as a percentile rank over the last three years, using only values up to that day, and divided into quintiles. For each quintile, the table shows the mean, median and share of positive returns of the S&P 500 (for COT data, of the respective market) over 21, 63 and 252 trading days. Counting starts on the first trading day after publication: three days after the reference date for COT, two to six days for stress indices, and from the same day for daily data. The fear and greed index is already in points and is split into quintiles directly.

The periods overlap: 5,000 trading days yield only about 20 independent one-year periods. The table states this number as well. That sentiment has an effect is well documented, but most strongly for hard-to-value stocks (Baker and Wurgler 2006) and not as a reliable timing signal for the market as a whole.

Data and timeliness

The COT reports come directly from the regulator and are cached for twelve hours, stress indices, rates, indices and prices for six hours. If a retrieval fails, the page shows the last stored data and lists the series under “without data”. All series can be downloaded as CSV.

Limitations

• Own index: the fear and greed index is a construction with fixed windows (125, 60, 50 and 20 days, two-year rank); other windows would give other values.
• US-centric: almost all series relate to US markets; for portfolios with large holdings outside the US, they are only a proxy for global sentiment.
• Short put/call history: the ratio's rank and statistics only become meaningful as the months go by.
• Futures prices: for commodities and rates, “What came next” uses continuous futures prices with jumps at contract rolls; for equities, the price index without dividends.
• No trading signals: the statistics describe the past; they do not predict prices.

This page describes how Portfolio Lab calculates; past results are not a forecast. All terms in the glossary.