Market Sentiment: Options Activity for March 9, 2010

MarketSentiment

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: 0.69
Index Volume Put/Call Ratio: 1.2
Equity Volume Put/Call Ratio: 0.45

Equities with the highest volume put/call ratio (Overly Bearish Sentiment)

ZIMMER HOLDINGS INC (ZMH) – Volume Put/Call Ratio: 30.33 – Open Interest Put/Call Ratio: 0.82
EATON CP (ETN) – Volume Put/Call Ratio: 26.5 – Open Interest Put/Call Ratio: 2.09
A F L A C INC (AFL) – Volume Put/Call Ratio: 25.96 – Open Interest Put/Call Ratio: 1.64
CHUBB CP THE (CB) – Volume Put/Call Ratio: 22.53 – Open Interest Put/Call Ratio: 1
INVESCO PLC NEW (IVZ) – Volume Put/Call Ratio: 15.71 – Open Interest Put/Call Ratio: 1.2
STATE STREET CP (STT) – Volume Put/Call Ratio: 12.89 – Open Interest Put/Call Ratio: 0.94
GEN MILLS INC (GIS) – Volume Put/Call Ratio: 12 – Open Interest Put/Call Ratio: 1.16
Windstream Corporation (WIN) – Volume Put/Call Ratio: 10 – Open Interest Put/Call Ratio: 2.64
PRUDENTIAL FINCL INC (PRU) – Volume Put/Call Ratio: 9.33 – Open Interest Put/Call Ratio: 11.97
ESTEE LAUDER COS INC (EL) – Volume Put/Call Ratio: 8.54 – Open Interest Put/Call Ratio: 0.75

Equities with the lowest volume put/call ratio (Overly Bullish Sentiment)

Expedia, Inc. (EXPE) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 1.61
QLogic Corporation (QLGC) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 0.14
CBS CORP CL B (CBS) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 0.56
ALLSTATE CP (ALL) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.07
SPRINT NXTEL CP (S) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.53
NATL SEMICONDUCTOR (NSM) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.58
L-3 COMM HLDGS INC (LLL) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 1.2
NEWELL RUBBERMAID (NWL) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.39
EASTMAN CHEM CO (EMN) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.82
NEWMONT MIN CP (HLDG (NEM) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 1.97

**Note: Ratios indicated above use volumes and open interest of current month option contracts