Equity Clock

Market Sentiment: Options Activity for April 29, 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: 0.69
• Index Volume Put/Call Ratio: 1.11
• Equity Volume Put/Call Ratio: 0.49

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

1. DARDEN RESTAURANTS (DRI) – Volume Put/Call Ratio: 22.72 – Open Interest Put/Call Ratio: 1.23
2. Ceradyne, Inc. (CRDN) – Volume Put/Call Ratio: 13.08 – Open Interest Put/Call Ratio: 1.01
3. Synovus Financial Corporation C (SNV) – Volume Put/Call Ratio: 10.17 – Open Interest Put/Call Ratio: 1.47
4. Ryland Group, Inc. (The) Common (RYL) – Volume Put/Call Ratio: 9.41 – Open Interest Put/Call Ratio: 2.91
5. CARDINAL HEALTH INC (CAH) – Volume Put/Call Ratio: 7.43 – Open Interest Put/Call Ratio: 2.2
6. SAFEWAY STORES INC (SWY) – Volume Put/Call Ratio: 7.14 – Open Interest Put/Call Ratio: 2.28
7. VARIAN MED SYS INC (VAR) – Volume Put/Call Ratio: 7.03 – Open Interest Put/Call Ratio: 0.74
8. Trinity Industries, Inc. Common (TRN) – Volume Put/Call Ratio: 6.31 – Open Interest Put/Call Ratio: 2.24
9. NORDSTROM INC (JWN) – Volume Put/Call Ratio: 6.19 – Open Interest Put/Call Ratio: 2.29
10. Dell Inc. (DELL) – Volume Put/Call Ratio: 5.82 – Open Interest Put/Call Ratio: 0.93

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

1. SOUTHERN CO (SO) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 2.19
2. DISCOVER FIN SVCS (DFS) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.32
3. INTERPUBLIC GROUP (IPG) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.19
4. RAYTHEON CO (NEW) (RTN) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.85
5. GAMESTOP CORP (GME) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 0.87
6. Jefferies Group, Inc. Common St (JEF) – Volume Put/Call Ratio: 0.05 – Open Interest Put/Call Ratio: 1.43
7. E*TRADE Financial Corporation (ETFC) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.13
8. Skyworks Solutions, Inc. (SWKS) – Volume Put/Call Ratio: 0.07 – Open Interest Put/Call Ratio: 0.45
9. UNION PACIFIC (UNP) – Volume Put/Call Ratio: 0.07 – Open Interest Put/Call Ratio: 1.47
10. MONSTER WORLDWIDE (MWW) – Volume Put/Call Ratio: 0.07 – Open Interest Put/Call Ratio: 0.21

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

Stocks mentioned in this post: CRDN, DRI, SNV