Market Sentiment: Options Activity for March 11, 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: 0.96
Index Volume Put/Call Ratio: 1.92 (Overly Bearish)
Equity Volume Put/Call Ratio: 0.54

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

MEDCOHEALTH SOLUTNS (MHS) – Volume Put/Call Ratio: 167.56 – Open Interest Put/Call Ratio: 4.57
Expedia, Inc. (EXPE) – Volume Put/Call Ratio: 19.08 – Open Interest Put/Call Ratio: 1.61
ROCKWELL AUTOMAT INC (ROK) – Volume Put/Call Ratio: 13.69 – Open Interest Put/Call Ratio: 1.42
MOODY’S CORP (MCO) – Volume Put/Call Ratio: 13.6 – Open Interest Put/Call Ratio: 1.45
NUCOR CP (NUE) – Volume Put/Call Ratio: 12.66 – Open Interest Put/Call Ratio: 0.69
NOBLE ENERGY INC (NBL) – Volume Put/Call Ratio: 9.5 – Open Interest Put/Call Ratio: 0.39
Intuitive Surgical, Inc. (ISRG) – Volume Put/Call Ratio: 7.21 – Open Interest Put/Call Ratio: 4.35
MCAFEE, INC (MFE) – Volume Put/Call Ratio: 6.65 – Open Interest Put/Call Ratio: 0.59
AETNA INC. NEW (AET) – Volume Put/Call Ratio: 6.28 – Open Interest Put/Call Ratio: 0.75
Whole Foods Market, Inc. (WFMI) – Volume Put/Call Ratio: 5.3 – Open Interest Put/Call Ratio: 1.52

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

LEGGETT PLATT INC (LEG) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 11.57
NYSE EURONEXT (NYX) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 2.14
FAMILY DOLLAR STORES (FDO) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 2.48
WYNDHAM WORLDWIDE (WYN) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 4.86
MACY’S INC (M) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 1.98
PUBLIC STG (PSA) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 3.54
PACCAR Inc. (PCAR) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.55
DISCOVER FIN SVCS (DFS) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.21
XEROX CP (XRX) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.22
TESORO CORP (TSO) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.18

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