Market Sentiment: Options Activity for April 23, 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: 0.66 (Overly Bullish)
- Index Volume Put/Call Ratio: 1.13
- Equity Volume Put/Call Ratio: 0.49 (Overly Bullish)
Equities with the highest volume put/call ratio (Overly Bearish Sentiment)
- Arkansas Best Corporation (ABFS) – Volume Put/Call Ratio: 12.28 – Open Interest Put/Call Ratio: 1.54
- A F L A C INC (AFL) – Volume Put/Call Ratio: 11.55 – Open Interest Put/Call Ratio: 1.09
- KRAFT FOODS INC (KFT) – Volume Put/Call Ratio: 11.19 – Open Interest Put/Call Ratio: 1.19
- Analogic Corporation (ALOG) – Volume Put/Call Ratio: 9.77 – Open Interest Put/Call Ratio: 0.28
- Pre-Paid Legal Services, Inc. C (PPD) – Volume Put/Call Ratio: 9.15 – Open Interest Put/Call Ratio: 4.08
- AIR PRODUCTS CHEM (APD) – Volume Put/Call Ratio: 8.01 – Open Interest Put/Call Ratio: 1.5
- BANK OF NY MELLON CP (BK) – Volume Put/Call Ratio: 7.31 – Open Interest Put/Call Ratio: 0.45
- RADIOSHACK CORP (RSH) – Volume Put/Call Ratio: 7.1 – Open Interest Put/Call Ratio: 0.51
- VORNADO REALTY TRUST (VNO) – Volume Put/Call Ratio: 6.34 – Open Interest Put/Call Ratio: 1.09
- P.F.Chang’s China Bistro, Inc. (PFCB) – Volume Put/Call Ratio: 5.01 – Open Interest Put/Call Ratio: 1.68
Equities with the lowest volume put/call ratio (Overly Bullish Sentiment)
- Williams-Sonoma, Inc. Common St (WSM) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 2.55
- NATL SEMICONDUCTOR (NSM) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.32
- ILL TOOL WORKS INC (ITW) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.54
- OFFICE DEPOT INC (ODP) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.75
- AES CORPORATION (AES) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 0.18
- HUMANA INC (HUM) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.69
- WILLIAMS COS (WMB) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.25
- MONSTER WORLDWIDE (MWW) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.19
- Louisiana-Pacific Corporation C (LPX) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.18
- Costco Wholesale Corporation (COST) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.97
**Note: Ratios indicated above use volumes and open interest of current month option contracts
Stocks mentioned in this post: ABFS, AFL, KFT
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