Equity Clock

Market Sentiment: Options Activity for March 12, 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: 0.86
• Index Volume Put/Call Ratio: 1.62
• Equity Volume Put/Call Ratio: 0.54

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

1. HUMANA INC (HUM) – Volume Put/Call Ratio: 103.92 – Open Interest Put/Call Ratio: 1.64
2. Biomed Realty Trust Common Stoc (BMR) – Volume Put/Call Ratio: 16 – Open Interest Put/Call Ratio: 0.21
3. City National Corporation Commo (CYN) – Volume Put/Call Ratio: 15.38 – Open Interest Put/Call Ratio: 6.3
4. ROCKWELL AUTOMAT INC (ROK) – Volume Put/Call Ratio: 13.69 – Open Interest Put/Call Ratio: 1.53
5. Mylan Inc. (MYL) – Volume Put/Call Ratio: 12.55 – Open Interest Put/Call Ratio: 1.33
6. P.F.Chang’s China Bistro, Inc. (PFCB) – Volume Put/Call Ratio: 10.74 – Open Interest Put/Call Ratio: 1.16
7. Panera Bread Company (PNRA) – Volume Put/Call Ratio: 10.47 – Open Interest Put/Call Ratio: 1.08
8. DARDEN RESTAURANTS (DRI) – Volume Put/Call Ratio: 10.34 – Open Interest Put/Call Ratio: 1.02
9. Diamond Foods, Inc. (DMND) – Volume Put/Call Ratio: 10.25 – Open Interest Put/Call Ratio: 3.15
10. CA Inc. (CA) – Volume Put/Call Ratio: 9.68 – Open Interest Put/Call Ratio: 0.66

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

1. XL CAPITAL LTD (XL) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 4.07
2. EASTMAN CHEM CO (EMN) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 1.45
3. PUBLIC STG (PSA) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 3.55
4. Burger King Holdings, Inc. Burg (BKC) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 0.38
5. FAMILY DOLLAR STORES (FDO) – Volume Put/Call Ratio: 0 – Open Interest Put/Call Ratio: 2.64
6. AIRGAS INC (ARG) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.87
7. Equity One, Inc. Common Stock (EQY) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 11.24
8. LEGGETT PLATT INC (LEG) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 11.56
9. Paychex, Inc. (PAYX) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.98
10. Worthington Industries, Inc. Co (WOR) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.9

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

Stocks mentioned in this post: BMR, CYN, HUM