Equity Clock

Market Sentiment: Options Activity for April 20, 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: 0.95 (Overly Bearish)
• Index Volume Put/Call Ratio: 2.41 (Overly Bearish)
• Equity Volume Put/Call Ratio: 0.52

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

1. Buffalo Wild Wings, Inc. (BWLD) – Volume Put/Call Ratio: 21.56 – Open Interest Put/Call Ratio: 2.05
2. CAMERON INTL CP (CAM) – Volume Put/Call Ratio: 10.21 – Open Interest Put/Call Ratio: 0.83
3. LINCOLN NATL CP (LNC) – Volume Put/Call Ratio: 9.21 – Open Interest Put/Call Ratio: 1.31
4. STARWOOD HOTELS&RES (HOT) – Volume Put/Call Ratio: 7.15 – Open Interest Put/Call Ratio: 1.93
5. Officemax Incorporated (OMX) – Volume Put/Call Ratio: 7.04 – Open Interest Put/Call Ratio: 1.12
6. Citrix Systems, Inc. (CTXS) – Volume Put/Call Ratio: 6.83 – Open Interest Put/Call Ratio: 0.72
7. Psychiatric Solutions, Inc. (PSYS) – Volume Put/Call Ratio: 6 – Open Interest Put/Call Ratio: 0.58
8. LEGG MASON INC (LM) – Volume Put/Call Ratio: 5.96 – Open Interest Put/Call Ratio: 0.88
9. AIR PRODUCTS CHEM (APD) – Volume Put/Call Ratio: 5.78 – Open Interest Put/Call Ratio: 1.3
10. PULTE HOMES, INC. (PHM) – Volume Put/Call Ratio: 5.25 – Open Interest Put/Call Ratio: 3.4

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

1. Mattel, Inc. (MAT) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.21
2. Arkansas Best Corporation (ABFS) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.81
3. NOBLE ENERGY INC (NBL) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.3
4. DIRECTV (DTV) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 1.49
5. Genzyme Corporation (GENZ) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.55
6. ALLERGAN INC (AGN) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.34
7. California Pizza Kitchen, Inc. (CPKI) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.26
8. PUB ENTRPR GP (PEG) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 1.33
9. AOL Inc. AOL Inc. Common Stock (AOL) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.08
10. Applied Materials, Inc. (AMAT) – Volume Put/Call Ratio: 0.07 – Open Interest Put/Call Ratio: 0.84

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

Stocks mentioned in this post: BWLD, CAM, LNC