Option-to-stock volume

Option volume measured against the volume in the underlying share. Written O/S.

Equity volume is counted in round lots of one hundred, so both sides of the ratio are in contract-equivalent units.

The direction is the opposite of the intuition

A high reading has preceded low returns, not high ones. Johnson and So (2012) report the low-minus-high decile earning 0.34% a week, t of 5.00.

The reason is the cost of shorting. A trader who wants to be short and finds the borrow expensive or unavailable can express the same view in the options market instead. Negative information therefore arrives in options at a higher rate than positive information does, and heavy option volume relative to share volume carries that skew with it.

Read the ratio as a measure of where informed traders had to go, not as a measure of enthusiasm.

The expiry window is part of the measure

Option volume counts only contracts expiring between five and thirty-five trading days out. The near boundary matters: inside five days, volume is dominated by position rolling, which is mechanical rather than informed. Including it dilutes the signal with flow that carries no view.

The predictive content decays quickly. It is largely a one-week measure.

Sources

Johnson, Travis L., and Eric C. So. "The Option to Stock Volume Ratio and Future Returns." Journal of Financial Economics 106, no. 2 (2012): 262–286. The construction, the 5–35 trading-day expiry window, the round-lot convention, and the 0.34% weekly decile spread at t = 5.00. The short-sale cost mechanism is the paper's own explanation for the negative sign.