Market Sentiment: Options Activity for March 25, 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: 0.79
- Index Volume Put/Call Ratio: 1.66
- Equity Volume Put/Call Ratio: 0.47
Equities with the highest volume put/call ratio (Overly Bearish Sentiment)
- Kansas City Southern Common Sto (KSU) – Volume Put/Call Ratio: 58.6 – Open Interest Put/Call Ratio: 1.72
- Tractor Supply Company (TSCO) – Volume Put/Call Ratio: 49.43 – Open Interest Put/Call Ratio: 2.26
- Ralcorp Holdings, Inc. Common S (RAH) – Volume Put/Call Ratio: 45.8 – Open Interest Put/Call Ratio: 0.49
- AMPHENOL CP (APH) – Volume Put/Call Ratio: 38.08 – Open Interest Put/Call Ratio: 1.88
- Fossil, Inc. (FOSL) – Volume Put/Call Ratio: 34.27 – Open Interest Put/Call Ratio: 1.65
- Jos. A. Bank Clothiers, Inc. (JOSB) – Volume Put/Call Ratio: 24.89 – Open Interest Put/Call Ratio: 2.39
- VORNADO REALTY TRUST (VNO) – Volume Put/Call Ratio: 15.98 – Open Interest Put/Call Ratio: 1.8
- Patterson Companies Inc. (PDCO) – Volume Put/Call Ratio: 15.79 – Open Interest Put/Call Ratio: 0.53
- Quicksilver Resources Inc. Comm (KWK) – Volume Put/Call Ratio: 14.19 – Open Interest Put/Call Ratio: 0.35
- CONS EDISON INC (ED) – Volume Put/Call Ratio: 12.09 – Open Interest Put/Call Ratio: 0.18
Equities with the lowest volume put/call ratio (Overly Bullish Sentiment)
- Chico’s FAS, Inc. Common Stock (CHS) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.25
- Hudson City Bancorp, Inc. (HCBK) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.64
- American Eagle Outfitters, Inc. (AEO) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 0.31
- TESORO CORP (TSO) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.23
- Neutral Tandem, Inc. (TNDM) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.38
- WYNDHAM WORLDWIDE (WYN) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.19
- PALL CP (PLL) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.06
- PULTE HOMES, INC. (PHM) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.63
- WMS Industries Inc. Common Stoc (WMS) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.39
- The Children’s Place Retail Sto (PLCE) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.46
**Note: Ratios indicated above use volumes and open interest of current month option contracts
Stocks mentioned in this post: KSU, RAH, TSCO
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