Market Sentiment: Options Activity for March 8, 2010
A reasonable gauge of market sentiment is the Put/Call Ratio. This is the ratio of the volume of put options to the volume of call options. Alternatively, open interest can be used in the calculation, as opposed to volume.
The ratio has become a commonly used indicator to determine if investors are bearish or bullish on a particular investment. When the Put/Call ratio is greater than 1 it is indicative of a bearish sentiment with Puts exceeding Calls. Conversely, a ratio less than 1 would mark a bullish sentiment with Calls exceeding Puts.
Contrarians use this ratio as a market timing indicator by gauging investments that may be overly bearish (high ratio) as a sign that the market is close to bottoming and buy on the expectation of a rebound. Conversely, if the market has become overly bullish (low ratio) investors would interpret this as an indication that a top is near and sell as a result. The ratio is more indicative when greater than 1, bearish sentiment, as it is more common that investors purchase call options over puts.
Today’s Options Action at mid-day:
- Total Volume Put/Call Ratio: 0.97
- Index Volume Put/Call Ratio: 2.07 (Overly Bearish)
- Equity Volume Put/Call Ratio: 0.53
Equities with the highest volume put/call ratio (Overly Bearish Sentiment)
- HOST HOTELS & RESORT (HST) – Volume Put/Call Ratio: 37.07 – Open Interest Put/Call Ratio: 3.47
- GAP INC (GPS) – Volume Put/Call Ratio: 36.96 – Open Interest Put/Call Ratio: 0.46
- CAMERON INTL CP (CAM) – Volume Put/Call Ratio: 23.37 – Open Interest Put/Call Ratio: 0.89
- AUTOZONE INC (AZO) – Volume Put/Call Ratio: 22.16 – Open Interest Put/Call Ratio: 2.78
- CHUBB CP THE (CB) – Volume Put/Call Ratio: 22.07 – Open Interest Put/Call Ratio: 0.93
- KOHLS CP (KSS) – Volume Put/Call Ratio: 20.67 – Open Interest Put/Call Ratio: 1.07
- Intuitive Surgical, Inc. (ISRG) – Volume Put/Call Ratio: 20.31 – Open Interest Put/Call Ratio: 4.16
- DIAMOND OFFSHORE DRL (DO) – Volume Put/Call Ratio: 11 – Open Interest Put/Call Ratio: 4.47
- EMERSON ELEC CO (EMR) – Volume Put/Call Ratio: 10.62 – Open Interest Put/Call Ratio: 2.07
- Costco Wholesale Corporation (COST) – Volume Put/Call Ratio: 9.04 – Open Interest Put/Call Ratio: 1.09
Equities with the lowest volume put/call ratio (Overly Bullish Sentiment)
- RADIOSHACK CORP (RSH) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.29
- Biogen Idec Inc (BIIB) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.76
- HOME DEPOT INC (HD) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 1.02
- OCCIDENTAL PET (OXY) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 1.46
- Northern Trust Corporation (NTRS) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.93
- REYNOLDS AMERICAN (RAI) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 1.02
- BAXTER INTL INC (BAX) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 1.14
- WALGREEN CO (WAG) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.53
- EASTMAN CHEM CO (EMN) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.81
- LOCKHEED MARTIN CP (LMT) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 1.29
**Note: Ratios indicated above use volumes and open interest of current month option contracts
Stocks mentioned in this post: CAM, GPS, HST
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