Herrick Payoff Index
Categories: Index Funds, Metrics
The Herrick Payoff Index (HPI) has nothing to do with Serpico and corrupt cops. Instead, it identifies potential trend and trend reversals for futures and options contracts, using trading volume, price, and open interest (the number of current outstanding options and futures contracts...ones that are in the works, but aren’t delivered or closed yet).
The Herrick Payoff Index is considered a way to measure the psychology of a group, since it includes the open interest, showing how “hot” options and futures contracts are at the time. For instance, if the price of a futures contract is rising along with the open interest rate, that signals an upward trend.
The HPI is a useful indicator for investors in the futures and options market, since these markets are less liquid than others (like stocks). You’re essentially locking yourself in for the length of the contract, which can be risky given more potential for volatility.
TL;DR: it pays to use the Herrick Payoff Index.