Equity Clock

Market Sentiment: Options Activity for April 14, 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: 0.55 (Overly Bullish)
• Index Volume Put/Call Ratio: 1.11 (Overly Bullish)
• Equity Volume Put/Call Ratio: 0.33 (Overly Bullish)

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

1. Under Armour, Inc. Class A Comm (UA) – Volume Put/Call Ratio: 7.5 – Open Interest Put/Call Ratio: 0.79
2. ANALOG DEVICES (ADI) – Volume Put/Call Ratio: 6.12 – Open Interest Put/Call Ratio: 1.03
3. MERCK CO INC (MRK) – Volume Put/Call Ratio: 4.97 – Open Interest Put/Call Ratio: 0.81
4. PROCTER GAMBLE CO (PG) – Volume Put/Call Ratio: 4.34 – Open Interest Put/Call Ratio: 0.66
5. ITT Educational Services, Inc. (ESI) – Volume Put/Call Ratio: 3.58 – Open Interest Put/Call Ratio: 1.21
6. ABERCROMBIE & FITCH (ANF) – Volume Put/Call Ratio: 3.35 – Open Interest Put/Call Ratio: 1.35
7. Adobe Systems Incorporated (ADBE) – Volume Put/Call Ratio: 2.95 – Open Interest Put/Call Ratio: 0.7
8. XL CAPITAL LTD (XL) – Volume Put/Call Ratio: 2.75 – Open Interest Put/Call Ratio: 1.09
9. CAPITAL ONE FINANCIA (COF) – Volume Put/Call Ratio: 2.28 – Open Interest Put/Call Ratio: 0.91
10. WELLPOINT INC. (WLP) – Volume Put/Call Ratio: 2.25 – Open Interest Put/Call Ratio: 0.83

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

1. Fifth Third Bancorp (FITB) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.83
2. QUALCOMM Incorporated (QCOM) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.64
3. LENNAR CP CL A (LEN) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 1.59
4. CITIGROUP INC (C) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.78
5. GENWORTH FINANCIAL (GNW) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.85
6. ALLSTATE CP (ALL) – Volume Put/Call Ratio: 0.09 – Open Interest Put/Call Ratio: 0.2
7. Huntington Bancshares Incorpora (HBAN) – Volume Put/Call Ratio: 0.1 – Open Interest Put/Call Ratio: 0.6
8. Micron Technology, Inc. (MU) – Volume Put/Call Ratio: 0.11 – Open Interest Put/Call Ratio: 0.56
9. METLIFE INC (MET) – Volume Put/Call Ratio: 0.12 – Open Interest Put/Call Ratio: 0.6
10. DISCOVER FIN SVCS (DFS) – Volume Put/Call Ratio: 0.13 – Open Interest Put/Call Ratio: 0.5

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

Stocks mentioned in this post: ADI, MRK, UA